When equity and total compensation go down that's a sign of oversupply of talent, not undersupply.
That's not what I'm talking about, here. The number of shares isn't necessarily going down. Its the crappy way that most startups handle the awards and the outstanding shares, making it so that the only people who actually get anything out of them are the founders and the investors.
Yes, when your probability of getting any value out of shares goes down, that's tantamount to a reduction in compensation.
I feel startups did this to themselves. It used to be that you'd work for a startup and the equity was supposed to pay off if the startup was acquired or took off. Now, even though a startup may sell for several billion or go public, most employee's equity has been diluted to hell and back, barely making up for the lower salary.