I don't see how this is a matter of compensation. Companies want to hire the best engineers. Your friends seem to not fit that bill. If there is no pool of good engineers, companies will look elsewhere. I don't see the scenario where less competition is helping anybody here. Your friends should work on their skills.

Seems none of the responses to your question was a true enough scotsman.

Hiring isn't a competition to find the smartest candidate, silly Google interviews notwithstanding. Companies want the "good enough" candidate they can get for the least pay. Otherwise all job ads would express a preference for principal engineers with doctorates, instead of the opposite which is far more common. So yes competition drives down pay, it doesn't drive up everyone's skills.

That means they were over pricing their skills. This is how a free market works.

It's not a free market. It's a regulated market with a gaping loophole.

Someone wiling to work for less is a loophole? You must be a fan of price fixing then.