RVR800
"... the law of supply and demand ..."
You are looking only at the supply side. From the club's point of view they have to balance supply of instructional talent (as well as aircraft of course and day-to-day services) and demand from students. Flying is expensive, on the edge of many students' ability to pay. If pay goes up much then they will lose a disproportionate amount of custom. While there are some people willing to do work they enjoy for little reward the pay will remain low. I worked part-time for enjoyment and experience of instructing and hours, not for the small pay I took, and it has been rewarding to me to have those hours, as it go me into another job.
Having said that there is certainly upward pressure on pay.