A new model of public school district performance concerns the "employment relations" (ER) system within a school district--the policies, practices, and actions that govern relations between a district and its teachers. The model posits that the performance of public school districts is propelled by the quality of ER. Productive ER, indicated by low levels of administrator-teacher conflict and positive work attitudes held by teachers, has been posited to facilitate high levels of school district performance. Archival data on 180 public school districts in Pennsylvania, combined with survey data from 10,308 teachers from these districts, were used to test the model. Results show that productive ER in school districts is positively associated with the test pass rate and negatively associated with the dropout rate. These findings result after controlling for student socioeconomic status, per-student instructional expenditures, and the adequacy of school facilities. The study has managerial implications for school administrators because it focuses attention on the degree to which administrators effectively manage ER within schools. In conjunction with reform programs focusing on curricula and school funding, training administrators to manage ER could be a relatively inexpensive component of an overall scheme for improving public education. (Contains 59 references.) (YLB)