I guess if you define "supply" as every person who is draft eligible and who plays baseball, it's an over supply.
By this definition there is an over supply of people for every single profession, job, internship, college spot, etc., in the world.
Except, that's not how it works - or defined.
Supply is defined - and initially limited - by persons meeting the initial qualifications sought by (lets say) the relevant industry/profession. For example, a law firm looking to add an attorney has an initial qualification (limiting supply) of a law degree. That law firm further limits supply to accredited law schools, then specific law schools (e.g., Ivy), then certain achievements within that school (e.g., Law Review, top 10%, etc.). From that resulting supply the firm satisfies it's demand.
No one views employers' prerequites as truly limiting supply (essentially what supply means in this context are those people meeting the minimim qualifications of that job) - the job definition limits the potential near infinite supply of humans. Supply is not defined as "those wanting the job."
While it's easy to be flip about the 90+% of professional signees as stable ponies, that's only looking backwards (i.e., after release/retirement). Every signeee (absent some nepotism) was evaluated by an expert (i.e. scouting side of each organization) who concluded that the signee had at least one potential MLB tool. THAT IS PROBALL'S PREREQUISITE: ONE POTENTIAL MLB TOOL. Proball's prerequisite is NOT everyone who wears a uniform (though that's where the scouts start).
Over the years, organizations have become more proficient (quicker) at determining whose POTENTIAL MLB tool will not develop. (Each organization used to have way more milb teams. But then came a more structured development system which allowed quicker evaluations. Now, statistical advances and mathematicians have/are making the process even faster.)
It's not the cost of the players salaries in low milb which will drive elimination of teams/levels, it's quicker analysis which determines who has a shot of reaching MLB. (Increasing salaries to minimim wage adds roughly 1 mil/yr per team for each organization - a pittance.)
(As an aside, less then 100 players make huge FA salaries. When you look at Investment Banking (as an example), there are way more people earning that - yet that industry pays it's starting analysts over 100k to start (works out to about $20 - 35/hr). Virtually every business/economics major in the country wants that job; yet despite that huge supply, the IB firms pay a hefty, above minimum wage, starting salary (because they limit the supply to top students or top schools) (I'm sure many would work for free to get in the door - yet the firms don't go that route.) And, 90% of those first year analysts will be gone by year 5. The 90% are not stable ponies; they leave for the same reasons milb players leave (burnout, life balance, not suited, other opportunity). The top legal firms are the same. These industries cast a wide net expecting huge attrition - and all but baseball pays minimum wage.)
What makes baseball unique?(indeed, an argument could be made that incoming baseball players, having played and focused on baseball for over a decade, are more qualified then a law student who has acquired 3 years of specialized learning or a first year analyst who knows nothing about IB.)