Obviously, to avoid "Step 4 - Employees in expensive markets leave for other jobs."

Even if one assumes the engineers in the expensive markets are all better, there's nothing a company like Reddit does which requires a bunch top level engineers. Some of their scaling and site reliability stuff, maybe, but it'll be a small portion of their employees.

They can solve that by paying accordingly more for their top technical positions to make those jobs competitive in expensive markets.

[I'm not arguing in favour of this, btw. - just pointing out it's an easy problem to solve]

The number of companies this would be a problem for is tiny.

Assuming employees in expensive markets are better. Is the hotdog at a music festival better?

According to Step 3, "Slowly allow salaries to stagnate until employees in expensive markets are no longer receiving fair pay", the employees in expensive markets are worth what they cost. Their pay is "fair".

Is the food at an expensive restaurant better? - sometimes but that is not always why it is expensive.

I think we are arguing the same point from different angles!