Many people competing for the same jobs drives wages down. More than half of households are dual-income households.† This increases the labor pool, which drives down prices.
Ironically, it would seem that, if more families switched to one parent being the primary breadwinner, it would drive up the cost of labor and make single-income households a more sustainable proposition for more families.
The knock-on benefits from the additional time and attention the now stay-at-home or part-time working parents could give their children would have a generationally positive impact on well-being and prosperity.
† Bureau of Labor and Statistics: https://www.bls.gov/opub/mlr/2020/article/comparing-characteristics-and-selected-expenditures-of-dual-and-single-income-households-with-children.htm
Most of the time, if you take into account buying work clothes, eating out lunch, transportation, and child care, especially when a family has multiple kids, the financial benefit of the 2nd income is very small and sometimes even negative (depends on # of kids and income of 2nd parent).
I've never thought of the effect on pay in the workforce because I've normally only looked at it from the point of view of a single family. If many families make this choice, you are correct.
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