You would think that supply vs. demand would have more effect than it apparently has.
(Warning: Potential Spin Zone material ahead)
I think a couple of factors are keeping wages depressed:
1)
Tradition -- there is a built-in bias towards low pay in exchange for hours and experience. "That's how it works" is the mentality of the employer and many employees.
2)
High Barriers to Entry -- It's very difficult for a new CFI to buy up several airplanes and start his/her own flight school. Capital is required to fund the operating costs (insurance, fuel) as well as the fixed costs. There are still enough new CFI's willing to work for low pay due to #1, thus completing the cycle. Couple this with the typical new CFI profile (young, inexperienced, heading to the regionals ASAP) -- it's perceived and treated as an entry-level job and entry-level is lowest pay.
3)
H1B Visa -- The H1B visa took care of skyrocketing Computer Programmer salaries in the late 90s. Remember Y2K? Plenty of ridiculous fear mongering -- mostly a scam to help open the floodgates of cheap labor to replace "high priced American" labor. This worked out fine for Chase-Manhattan, Merrill Lynch, and every Insurance company, but not so good for US SW Development firms.
Remember the
Time magazine articles about programmers living large, taking their dogs to work, playing ping-pong and foos-ball? Thousands of "guest worker" visas were issued to flood the ranks of large corporate software development departments. After 2000, many of those workers went home, set up small coding houses, and are now "offshore software development" centers.
