I think it's important to first point out that there is currently an expansive "mercenary" industry around the world.

This is the statutory definition of Mercenary as it stands under the Geneva Convention.

There are companies based all over the globe that fall under the egis of "Private Military Companies," or "Private Military Contractors" that provide services often referred to as private security, surveillance, counter-surveillance, private counter-intelligence, defense contracting, and many more.

While many of these groups provide digital or inter-country security services, you're asking about mercenaries in the traditional sense so essentially "guns for hire."

There are lots of companies based in the United States, the United Kingdom, Russia, Australia, South Africa, and others that hire individuals strictly based on combat and/or operational experience in military special operations groups. Certain companies such as Australia's Unity Resource Group, or Russia's Alfa-Tsentr, or America's Triple Canopy have positions that require experience in these special forces groups (SAS, one of the JSOC elements, Spetsnaz, etc.), and these employees are sent to "protect" or "provide security services" in war zones or countries in turmoil around the world. These places tend to offer uniquely lucrative and time-sensitive economic opportunities that you'll often see natural resource-based corporations willing to entertain. In doing so, they're rarely operating under the protective reach (geographically and legally) of a their own, or another large national military. So, they've got to handle their own security measures for their operation and staff.

Training and operating within foreign nations' militaries or intelligence groups is also a large part of these companies' service.

For the last decade, there've been American and British corporations with employees (mercenaries) in Iraq, Afghanistan, Syria, all over Africa and South America carrying out a variety of activities that would legally constitute "mercenary" work.

I think to address your question finally - it really hasn't faded, it's become somewhat shrouded in international corporations' service offerings, and is largely a protected enterprise by international and various nations' laws. But again, the industry has actually flourished since even before the semi-formal initiation of the Global War on Terror, when oil and gas corporations flooded into Kuwait & Iraq following the first invasion of Iraq in 1991, and has remained healthy ever since.

But there certainly was bit of a "mercenary-lull" during the earlier half of the 20th century (with the Spanish Civil War as an exception), and this is largely due to how diplomacy and international law was conducted, as well as the usual pool of mercenaries (combat veterans or active soldiers looking for the work of battle) were being nationally summoned into the greatest conflicts in history.

But in WWI for instance, there was a famous air squadron the Lafayette Escadrille, which was largely comprised of American volunteer pilots serving for the French. Germany actually objected to the name of the squadron, because it suggested America had "defaulted" on its formal Declaration of Neutrality, announced by president Woodrow Wilson in 1914. The objection actually prompted the squadron to be renamed Escadrille Lafayette, to essentially sound more French, and be perceptibly incorporated into the French military. However, because they were foreign volunteers being paid, outfitted, and commanded by the French military they did legally constitute "mercenaries" for the time, which were statutorily referred to more as "volunteer units," as established by the Hague Convention II (1899) Laws of War. (Which you can read here if you're interested). This was the governing international law of war during WWI, and was used for charge and defense by national leaders to, what some would say, a bizarre extent during WWI. Bizarre because since then it seems most of the legal discussion happens after one side has lost, and is then subject to the more formal diplomatic procedures of concluding a war and transitioning to reconstruction - as opposed to while massive land campaigns are underway, as was the case in many instances throughout WWI.

The Lieber Code (which would go on to be the foundation for the laws of conduct during war under the Geneva Convention) actually was "semi-ratified" (this informal recognition and adherence is pretty dry and complicated IML fussiness) into the Hague Convention II, which had laws regarding volunteer units. The legislative intent of this language was to address the conduct, treatment, or rights of volunteer units, or mercenaries, recruited from abroad to fight for a particular nation under the treaty.

The Spanish Civil War in the latter 1930s was flush with foreign combatants, many fighting for personal opportunities as mercenaries, from all over the world. The Republican army had many thousands of Russians, French, American, German, British and Mexican fighters for hire, and the Nationalist army had perhaps even a larger population of Germans, Italians, Portuguese, Moroccans, Catholics from all over, and Irish fighters for hire. Many people from all over the world went to Spain to fight for coin or opportunity on both sides because of the global ripeness in the ideologically contentious democracy vs. communist[Correction: Fascist] riff, so these sides were kind of drawn in many places around the world, and Spain provided the squabbling grounds.

In regard to WW2, this is a great archived post from this sub I remember reading a while back that could cover the specifics.

So there definitely was a lull in the "mercenary industry" between the Franco-Prussian War in the 1870s (which was loaded with fighters for hire, some interesting stories of American Civil War veterans who fought in this war actually) and the end of WWII. Largely, the world wars offered most military-aged men from most nations an opportunity, or an obligation, to go and fight or participate in the war effort in some capacity. The "spoils of war" that attract career combatants weren't as available to the would be mercenaries of that time, as the largest areas of combat around the world were being fought over in massive engagements by the largest national militaries and navies ever mustered. So, these two particular wars didn't occur during a time when there were veterans "out of the job," so to say, as most veterans or soldiers, and really most military-aged men, were embroiled in the biggest fights in the world's history.

Kind of winded TL;DR The world wars brought most veterans or current soldiers (who would be your usual demographic of active or potential mercenaries) into the fight for their home countries whether they liked it or not. There are some instances in both wars when volunteers fought in a foreign nation's struggle for pay or spoils, but the global participation in WWI & WWII is largely the socioeconomic cause for the lull. And presently, the mercenary industry is thriving.

EDIT: Here is my comment below outlining some of the history of mercenaries, or "soldiers of fortune" involved in both sides during the Spanish Civil War.

EDIT: Here is my comment below outlining some of the legal and corporate structure of present-day mercenary groups, or PMCs.

Mercenaries really began to go out of the vogue in European militaries after the Thirty Years War; which was in many ways the exemplar of a mercenary's war. Large contingents of mercenaries supplemented the armies of all the warring armies of this conflict - in many cases forming the majority.

The Thirty Years War also served as an abject lesson on how utterly destructive mercenaries could be to civilian populations - something like 2/3rds of German villages were obliterated by constant warfare and pillaging - which spurred the development of national armies to make the hiring of mercenaries unnecessary; save for nations that have recruitment difficulties (e.g. Britain in the Revolutionary War).

By the 19th Century, mercenary armies were virtually extinct - with only small ceremonial units (e.g. the Vatican Swiss Guards) remaining in place. This was due to the even stronger power of the national governments by this period. Indeed privateering - which is basically the naval form of mercenaries - had been outlawed altogether by international treaty.

A clarification question here. Are not military contractors mercenaries since they fight for money? Or because they fight for one side only they aren't considered mercenaries?

A reply to /u/Sbliek

If you are asking about the evolution of mercenaries from the late medieval era into the modern era, it's important to look at why mercenaries were common in the late medieval era.

Simply put, there was a meeting of need for experienced, cohesive, well-equipped units to fight wars, and the availability of such "mercenary" units. But the definition of "mercenary" was broad, and the space in which they operated in, vast.

The condottieri units initially came into being in Italy as city-states had wealth and needed high-quality troops that they could not raise and maintain themselves. In the beginning, this was done on a contract-by-contract basis. Later on, both the units and the city-states realize there was mutual benefit in negotiating long-term contracts such as that between Hawkwood's Great White Company and the city-state of Florence.

Of course, not everybody agreed that mercenaries were the end-all be-all, in particular Machiavelli viewed them negatively and advocated for a state-controlled militia. Except that the inexperienced militia that he raised was beaten handily by experienced mercenary units.

The same situation applied to Swiss mercenaries, which I wrote about here and here. They too moved into the permanent alliance model, with France's Francis I.

The 1500s saw the rise of firearms both in cannons and infantry guns. This allowed for the training of peasants into what was considered competent soldiers in short time, and for larger-scale provisioning of such weapons. But experience, cohesion, and leadership were still paramount. So there was great pressure to be able to recruit, train, and equip larger armies.

The states did not yet have the means to recruit nor maintain a standing army. So they had a variety of ways to recruit as I wrote here. The lack of a fluid banking system meant that commanders at all levels had to participate as military enterprisers, something that I wrote about here, meaning that they often had to personally invest/put up their personal money up-front, with the hopes of reimbursement and rewards later on. Challenges of logistics should be underestimated. All this is part of the rise of the fiscal-military state. There are many examples of great enterprisers, such as Wallenstein and this predecessor Spinola.

So if we are to follow an inclusive definition of "mercenaries", almost every commander of that era was a mercenary commander. That's why some scholars preferred the term "military enterpriser" to describe them.

But throughout all this, states had always preferred that they could raise, maintain, and control troops directly. That's why Wallenstein was assassinated on order of his theoretical lord, the Holy Roman Emperor, when it was suspected he was about to set up his own independent state. And that's why following the end of the Thirty Years' War, states started to change their model into one of higher taxation, higher revenue generation, such that they could raise their own armies.

Small states that wanted to maintain a larger army than they could afford then became themselves military enterprisers. An infamous example being the Hessians serving British interests abroad. This is the model that rose further and further into the 18th and 19th century.

I hope the above gives a good context for the rise and fall of the mercenary model as a military solution.

In the modern theatre of war that is no longer the case. At various points throughout the war in Afghanistan and Iraq the USA has had more 'private military contractors' (read mercenary) than enlisted troops on payrole.

The logic is that first, and most obviously, you can supplement your military might by outsourcing employment, but also the country employing mercenaries isn't burdened with the same duty of care for private soldiers. Whilst a high deathtoll for enlisted service men and women can be a political nightmare and a stain on the conscience of a nation, most people don't even know there are mercenaries in the middle east, let alone in the quantity they're in. Furthermore since these troops are contracted through private companies, the duty of care in retirement, be it natural or through injury, isn't the hiring countries direct responsibility.