Executive Summary
Class size is one of the small number of variables in American K-12 education that are both thought to influence student learning and are subject to legislative action.  Legislative mandates on maximum class size have been very popular at the state level.  In recent decades, at least 24 states have mandated or incentivized class-size reduction (CSR).
The current fiscal environment has forced states and districts to rethink their CSR policies given the high cost of maintaining small classes.  For example, increasing the pupil/teacher ratio in the U.S. by one student would save at least $12 billion per year in teacher salary costs alone, which is roughly equivalent to the outlays of Title I of the Elementary and Secondary Education Act, the federal government’s largest single K-12 education program.
The substantial expenditures required to sustain smaller classes are justified by the belief that smaller classes increase student learning.  We examine “what the research says” about whether class-size reduction has a positive impact on student learning and, if it does, by how much, for whom, and under what circumstances.  Despite there being a large literature on class-size effects on academic achievement, only a few studies are of high enough quality and sufficiently relevant to be given credence as a basis for legislative action. 
The most influential and credible study of CSR is the Student Teacher Achievement Ratio, or STAR, study which was conducted in Tennessee during the late 1980s.  In this study, students and teachers were randomly assigned to a small class, with an average of 15 students, or a regular class, with an average of 22 students.  This large reduction in class size (7 students, or 32 percent) was found to increase student achievement by an amount equivalent to about 3 additional months of schooling four years later.
Studies of class size in Texas and Israel also found benefits of smaller classes, although the gains associated with smaller classes were smaller in magnitude than those in the Tennessee STAR study. Other rigorous studies have found mixed effects in California and in other countries, and no effects in Florida and Connecticut.
Because the pool of credible studies is small and the individual studies differ in the setting, method, grades, and magnitude of class size variation that is studied, conclusions have to be tentative.  But it appears that very large class-size reductions, on the order of magnitude of 7-10 fewer students per class, can have significant long-term effects on student achievement and other meaningful outcomes. These effects seem to be largest when introduced in the earliest grades, and for students from less advantaged family backgrounds.
When school finances are limited, the cost-benefit test any educational policy must pass is not “Does this policy have any positive effect?” but rather “Is this policy the most productive use of these educational dollars?” Assuming even the largest class-size effects, such as the STAR results, class-size mandates must still be considered in the context of alternative uses of tax dollars for education.  There is no research from the U.S. that directly compares CSR to specific alternative investments, but one careful analysis of several educational interventions found CSR to be the least cost effective of those studied.
The popularity of class-size reduction may make it difficult for policymakers to increase class size across the board in order to sustain other investments in education during a period of budget reductions. In that context, state policymakers should consider targeting CSR at students who have been shown to benefit the most: disadvantaged students in the early grades, or providing a certain amount of funding for CSR but leaving it up to local school leaders on how to distribute it.
In settings where state mandates on maximum class size are relaxed, policymakers need to bear in mind that the effect of any increase in class size will depend on how such an increase is implemented.  For example, a one-student increase in the pupil/teacher ratio in the U.S. would reduce the teaching workforce by about 7 percent.  If the teachers to be laid off were chosen in a way largely unrelated to their effectiveness, such as seniority-based layoffs, then the associated increase in class size might well have a negative effect on student achievement.  But if schools choose the least effective teachers to let go, then the effect of increased teacher quality could make up for some or all of the possible negative impact of increasing class size.
State resources for education should always be carefully allocated, but the need to judiciously weigh costs and benefits is particularly salient in times of austere budgets.  Class-size reduction has been shown to work for some students in some grades in some states and countries, but its impact has been found to be mixed or not discernable in other settings and circumstances that seem similar.  It is very expensive.  The costs and benefits of class-size mandates need to be carefully weighed against all of the alternatives when difficult decisions must be made.