I think unit size is fine, but I don't think it needs to be a tech, and players should be able to choose maximum group size if they want.
HOWEVER, I would introduce a cost mechanic that would make large groups cost a little more than two units half their size as a balancer. Inefficiency of bureacracy and all that.
Also, if larger groups take longer to complete, there will be times when you need the small militia on station immediately to stave off wandering monsters and such, as opposed to waiting for the larger unit to finish training. Also, smaller units make for better scouts, so they will still have a purpose.
As to the four sizes of units, I think individuals (for scouts and such) and squads (light defense and perimeter outpost staffing) both may have uses. The upper two levels I think there is lesser distinction for. I'd suggest that the largest sized units, having the most hit points, probably should have a reduced combat strength relative to next size down, as some people are lined up behind each other. of course, once this unit is reduced to the next lower level, said reduction would go away.
Size 1 (individuals) might provide a pathway for settlements to build new champions as well, with individuals that distinguish themselves in combat or some such having the chance to be upgraded to Champions, within limits of course.
Unfortunately, the movement scale for Elemental is too small to assign a movement penalty for larger units. I think Elemental would be a more enjoyable game if the base move was 4 instead of 2, but that's just my humble opinion.