Indeed, cost of living doesn't fully explain wage disparities between states. The states with higher wages and higher housing costs just happen to be wealthier states overall, with more successful economies. And there are pockets of higher and lower wages even within a given region, with similar dynamics. If you want to live and work in the Midwest, it's good to live near a public university, and barring that, near a hospital. Higher wages tend to be justified by the threat that you'll lose your employees if you pay lower wages. And this relationship is more effective in more dense labor markets with better labor laws. For instance, "tech" workers in silicon valley can easily hop from one job to another, often just walking across the street, and are protected by laws that forbid things like non-compete agreements.