This is a common misconception actually.

In the US legal market, wages are either sticky or stagnant. Biglaw firms in the major markets like New York, Chicago and LA/SF have been paying starting salaries of US $160,000 since 2007. In smaller cities, it is of course less, but commensurate with the cost of living. But salaries have never fallen because there is fierce competition to attract talent.

It is either you land an associate position or you are jobless. There's no such thing as paycuts. Of course there are bonus cuts. But never the base salary.

A second misconception is that an oversupply of law graduates means legal costs fall. Only someone without a working knowledge of how the legal industry works would assume such a thing.

For big ticket corporate work, costs pressures are client driven. If companies want to cut legal spend on external lawyers, they will pressure for fee cuts. Law firms will drive down their fees to undercut competitors. If your law firm is unwilling to charge at a competitive rate, some other law firm will step in to do the work. This occurs whenever the economy is bad, like it is now.

For man-in-street work, there is only so low prices these small shops can charge. They still need to cover their overheads and make a profit. I believe your usual Chinatown firms are already charging as low a fee as they can viably do.

In neither of these cases does the supply of law graduates affect the legal pricing one iota. The only effect of an oversupply of law grads is the effect on salaries, so in that sense you are correct. But only in Singapore can law firms get away with cutting salaries. In the major markets like the UK and USA, salaries are never cut. They can only rise.