Class size, education, and wages

We use micro data for England and Wales to examine the effects of class size on the decision to stay on in full time schooling at 16 and on wages later in life. We find that class size has a sizeable and significant effect on the decision to stay on. This finding is very robust. Wage equations show the effect of staying on is significantly positive for wages. Combining this with the effect of class size on the staying on decision, reveals that class size significantly affects future wages. Reduced form models lead to much less accurate and insignificant estimates.