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Military aviation is my 'first love'... studying it led me to broader military studies, which led me to history, which led me to politics... egad... anyway, I digress...
The Air Force situation is certainly the most stark example of the weighing of size versus quality. Despite all the changes that have happened, much of the force structure of the AF is a remnant of the Cold War. Certainly the large bodies of AF men and organization wrapped up in strategic warfare isn't something you can rapidly reduce. Additionally, current demands on the force are quite different from the long term threats that we may face down the road, but need to be preparing for now.
As for pay though, the main cause of having to reduce personnel is to bring in newer aircraft and systems which are much more advanced than previous ones. This usually requires a smaller force structure to carry the same capability, but the onus is on the personnel to handle the higher end systems. While the fact that you are reducing personnel may seem to indicate less need for high pay and benefits to attract people, in fact I would argue the opposite is possibly true as you need to ensure that the smaller remaining number of people need to be absolutely the best you can get. You don't want to shrink the pool of people to choose from, even if you are accepting a smaller percentage of it, because it is so critical that you maintain ever increasing standards of quality amongst those you do accept. It is also more critical that you retain people you choose to retain during a drawdown in personnel numbers. If your pay and benefits are insufficient, the higher end people will depart as they have brighter prospects elsewhere. If you pay is good on the other hand, you can afford to choose who to shed, and those you want to keep will be eager to remain.
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