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Economics of Education Review,
Vol. 14, No. 3, pp. 229-241, 1995Jt~De~smon Elsevier Science LtdPrinted in Great Britain0272-7757/95 $9.50+0.000272--7757(95)00004--6
Does Class Size Matter?
KAREN AKERHIELMMathtech, Inc., 202 Carnegie Center, Suite 111, Princeton, NJ 08540, U.S.A.Abstract--This paper analyzes pupil-specific public school data unavailable in previous studies andapplies instrumental variable econometric methods to account for nomrandom allocation of students todifferent class sizes and the endogeneity of the class size variable. By using better data and improvedstatistical techniques, this paper shows that there are returns to investing in smaller classes for certainstudents and it provides some evidence on why past literature has produced such inconsistent findingson the effects of class size.
[JEL
121]I. INTRODUCTION 2. OVERVIEW OF THE LITERATUREWHETHER OR NOT to reduce class size is one of the While there is not consistent empirical evidence onmost contentious aspects of the debate on educational the link between class size and student achievement,reform, mainly because past research has failed to some studies have shown that small class size isshow any consistent relationship between class size important for certain types of students, such as low-and student performance. Of a review of 112 studies achieving students, elementary school students, andon class size, only 23 found a statistically significant students from low socio-economic backgroundsrelationship between class size and student achieve- (Summers and Wolfe, 1977; ERS, 1986; Dolan andment and only fourteen of these exhibited a negative Schmidt, 1987).relation; the other nine studies showed that as class Other studies have analyzed the link between classsize increased, students performed better on tests, not size and future earnings, bypassing the immediateworse. 'There is little apparent merit for schools to effects on student achievement. One recent studypursue their ubiquitous quest for lowered class sizes', found that males who went to schools with low pupi]-(Hanushek, 1986, p. 1167). teacher ratios ended up with higher wages and thatThis paper contributes to the debate on class size the closing over time of the class size gap betweenby analyzing pupil-specific public school data blacks and whites explains about one-fifth of the clos-unavailable in previous studies and by applying ure in the black-white wage gap between 1960 andeconometric methods that account for non-random 1980 (Card and Kreuger, 1992).allocation of students to different class sizes. By using There are two major reasons why past research hasbetter data and improved statistical techniques, this revealed such inconsistent results. First, due to miss-paper shows that there are returns to investing in ing data on a student's actual class size, past researchsmaller classes for certain students and it provides often used the pupil-teacher ratio for an entire schoolsome evidence on why the past literature has pro- as the indicator of class size (Coleman
et al.,
1966:duced such inconsistent findings. Coleman
et al.,
1982; Chubb and Moe, 1990; Card[Manuscript received 16 March 1994; revision accepted for publication 6 December 1994.]229
 
230
Economics of Education Review
and Kreuger, 1992 all used aggregate ratios). To the 3. THE MODELextent that an aggregate ratio differs from the classsize that a student was actually exposed to, measure- The specification of the educational process usedment error exists, biasing the coefficient of the class in this paper is based on the theoretical framework ofsize variable toward zero. an educational production function model in whichIn addition, pupil-teacher ratios are defined as the the achievement (or output) of student i in subject jnumber of students in the school divided by the num- (as measured by test scores) is related to various fam-ber of full-time teachers for an entire school and may ily background, community, and school resourcehave nothing to do with actual class size. This ratio inputs (Hanushek, 1979; Link and Mulligan, 1991).often includes guidance counselors, principals, and The model can thus be written as:special education teachers in the count of teachers,and thus the lower the ratio, the higher the non-teach- Y~j = et + 13~X~+ 132Wij + 133Zij +¢ij (1)ing staff, regardless of actual class size. Moreover,even if the ratio only includes actual teachers, schoolswith the same pupil-teacher ratio may have signifi- where Yij is the test score for child i in subject j, X~is a vector containing family and community charac-cantly different class sizes depending on the averagenumber of hours of teaching required (Bowles and teristics for child i, Wij is characteristics of child i'sLevin, 1968). teacher in subject j, Zij is child i's class size in subjectThe second problem is that, as opposed to using j, and % is an unmeasured error component whichincludes inputs such as innate ability and motivation.experimental (or randomized) data collected as partof a specific class size evaluation, past studies have The error term can also be thought of as 'unobservedoften relied on data that were part of a larger national test-taking ability'.survey implemented for other purposes. As a result, The question this paper asks is, what is the effect Ofclass size on a student's achievement, holding variousprevious research has used data in which student allo-cation to different class sizes may not be a random family, community, and teacher characteristics con-stant? Class size may affect achievement if studentprocess.If a school has a deliberate policy to assign difficult participation and satisfaction, student attendance,or less able students to smaller classes, then any posi- teaching practices and/or the amount of individ-ualized attention received by the student varies fortive effect of small class size on student performance different class sizes (Smith and Glass, 1980; Cahenmay be disguised because such students may tend to
et al.,
1983).score lower on tests. Likewise, if a school has a pol- However, students may not be allocated randomlyicy of assigning advanced students to the smaller to different class sizes. Suppose a school has a delib-classes, then a positive relation between small classerate policy to assign less able students to smallersize and student performance may be overstated. In classes. In such a situation, the assumption of Covthese examples, class size (and the allocation of stu- (Z,~) = 0 is violated when using OLS because thedents to various class sizes) is a choice variable and relationship between Z (class size) and ~ (unobservedthus the estimation of the class size-student achieve-test taking ability) is positive. As a result, 133 will bement relationship using ordinary least squares (OLS) upwardly biased, falsely suggesting that as class sizewill provide biased coefficients, increases, students' cognitive skills increase as well.Experimental studies in Indiana and Tennessee, in Similarly, if a school has a systematic policy to assignwhich students were randomly assigned to different advanced students to the smaller classes, then a nega-class sizes and followed over time, found significant, tive relationship between Z and ~ will downwardlypositive effects of small classes on elementary school bias the OLS relationship between class size and stud-student achievement (McGiverin
et al.,
1989; Word ent performance, implying a stronger association
et al.,
1990). By showing the importance of small between small classes and student achievement thanclasses when there exists a random allocation of stu- is actually the case.dents to different class sizes, the results from exper- The solution entails instrumenting class size, usingimental studies suggest that a non-random allocation a two-stage least squares (2SLS) approach, based onmay mask the true relationship between class size and exogenous school-level variables as the instrumentsstudent achievement, for class size. Thus, student achievement is estimated
 
Does Class Size Matter?
231conditional on the process of non-random allocation Table 1 also shows that lower ability students (asof students to different class sizes as follows: defined later in this paper) have smaller classes onaverage. When t-tests were constructed that comparedY~j = ot + 13tXi + 132Wij + 1337.ij + % (2) the differences in class size means among each pairof subgroup of students, for all possible comparisons(except for urban non-white and urban white sciencewhere Z is endogenous and thus must be predicted students), the null hypothesis of similar class sizeusing exogenous variables that are related to Z and means for the two subgroups was rejected.not with e.The major problem with this model specification isusing data from one year only (in this case the eighth OLS Regression Resultsgrade) which may not provide a sufficient control for Table 2 displays the results of running the OLSregression for all four subjects, using the modelinitial ability. However, the correlation between described by equation (1). This table also shows theinnate abilities and class size, after controlling for means and standard deviations of each of the vari-family background factors such as income and edu-cation, is likely to be small (Hanushek, 1979). ables used. In all four subjects, the pupil's actual classsize has a positive influence on achievement (as mea-sured by test scores) while for three of the four st~b-4. NELS DATA SETjects (all except science), the effect is significant (atThe data used in this analysis are from the U.S. the five percent level for math and English and at theDepartment of Education's National Education ten percent level for history). Overall, using OLSLongitudinal Study (NELS) of 1988. In this nation- shows that the relationship between class size andally representative sample, over 24,000 eighth graders student achievement, after controlling for family,from public and private schools throughout the U.S. community, and teacher inputs, is positive and sig-were surveyed in 1988 and tested in four subjects nificant, suggesting that as class size increases, stud-(mathematics, English, science, and history). One par- ent performance increases as well.ent and two teachers of each student (representingtwo of the four subjects) were also surveyed as was Spline Techniquesan administrator from each school. On average, each Splines were used to determine if there are certainof the 1,052 participating schools was represented by ranges for which changes in class size may not have24 students and five teachers. The cognitive tests con- an impact on test scores. Reviews of the class sizetained a total of 116 items to be completed in 85 literature (ERS, 1986; Glass and Smith, 1979) haveminutes, often concluded that changes in class sizes have noeffect on student achievement in the mid-ranges of5. ESTIMATION RESULTS class size (i.e., 20 to 30 students). Since there havebeen several definitions of the 'mid-range' of classAll estimation and testing was conducted for the size in the literature, this section examines two poss-four different subjects to see if class size effects differ ible scenarios as shown in Table 3.by subject matter and to take advantage of NELS In both scenarios, three class size 'spline' variablesclassroom-specific data. were included in the regression to represent the low,As Table 1 illustrates, the average class size and middle and high ranges of class size. While actualthe pupil-teacher ratio for all four subjects, is larger class size was the variable that represented the smallfor non-white students than for white students (not range of class size, two new variables were createdcontrolling for other characteristics). This is incon- to represent the middle and large ranges. ~ As a resultsistent with recent research that found similar pupil- of this specification, the coefficient of the small-rangeteacher ratios for whites and blacks (Boozer
et al.,
variable (b~p~i,ej) represents the effect of each1992; Card and Kreuger, 1992). Urban non-whites additional student in the small range of class sizehad significantly larger classes than urban whites for while the coefficients added together from the small-all subjects except science. Overall, the average range and the mid-range
(bspllnel
+bspline2)represent
pupil-teacher ratio is about 18 or 19, consistently and the effect of an additional student in the mid-range.substantially lower than average class size. Likewise
bspJine I
+
bspline2
+ bspline3
equals the effect on
of 00

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