I don't see what you think is wrong with businesses choosing cheap labor and paying only for qualifications they actually need: you do the same thing in your daily life.
It's because there is a massive power imbalance between the employer and employee. Generally speaking, the employee needs a job more than the employer needs the employee. The employer probably has hundreds of applications for a given position, while the prospective employee is struggling to get interviews, let alone offers.
Price competition does not work in the same way as salary competition, because the actors are on different sides of the equation. If shop A is asking too much for a good or service, I can easily go to shop B to see if it is cheaper there because I am the purchaser. If shop A wants my business they need to either lower their prices or add value to their offering to justify the higher price. In the salary competition scenario, the employee is like the shop. He is selling his labor to the employer. So the employer is the one who can shop around, and the employee has to either lower his wages or add value to justify higher wages. The difference between the two scenarios is the power imbalance. There is not a huge power imbalance in the price competition scenario like there is in the salary competition scenario.