Reward or punishment? Class size and teacher quality

•Using teacher/student matching we estimate a prior teaching effectiveness measure.•Past effectiveness is significant in explaining class size in all school levels.•Past effectiveness is positively related to class size in all school levels.•Findings suggest that previous estimates of class size effects may be biased.•Findings suggest that principals recognize differences in teaching effectiveness.

The high stakes testing and school accountability components of our K-12 education system create an incentive for principals to behave strategically to maximize school performance. One possible approach is the adjustment of class sizes based on observed teacher effectiveness. Conceptually, this relationship may be positive or negative. On one hand, performance-maximizing principals may place more students in the classrooms of more effective teachers. But because administrators may have compensation constraints, it is also plausible that they may reward more effective teachers with fewer students in the classroom. This paper examines whether principals reward effective teachers by decreasing their class size or whether they increase the size of classes of more effective teachers as a means of enhancing the school outcome. Results overall indicate that more effective teachers do have larger classes. This result holds implications for prior policy studies of class size as well as for education policy more generally.