Today American Public Media's Markeplace aired a commentary by Harley Shaiken, an instructor at UC Berkley on labor and economy.  The commentary deals with the potential bailout of American automakers and the role labor costs have played in their financial woes.  In the commentary, he argues:
Labor costs of course are important but low wages are not the secret to
competitive success nor are they without risk. The danger is they lead
to a downward wage spiral, depressed purchasing power, and an economy
based on the working poor.
He uses the experience of American industrial icon Henry Ford to illustrate his point:
. . .Henry Ford introduced the moving assembly line in 1913. A year later
Ford startled the world by doubling the prevailing wage to $5 a day,
prompting many to claim this reckless act would bankrupt the industry.
Instead, employee turnover went down, performance improved, and profits
soared.
I'm not sure that "turnover went down, performance improved, and profits
soared" for Ford's competition.  Shaiken follows up by establishing a correlation between productivity and high wages.
The $5 day was a great start but it took the birth of the UAW and other
industrial unions in the 1930s to forge a long-term link between rising
productivity and high wages.
Economics is great at finding correlations.  The danger is misinterpreting correlation as causation.

He finishes with something bordering on advice:
Our greatest economic success occurred when U.S. firms paid the highest
wages in the world, not the lowest. . . A superior product, high productivity and high wages
pave the road to a healthy economy and a decent society.
Shaiken applies directionality to his correlation (high wages -> high productivity) in order to provide guidance during the financial crisis of the auto manufacturers.   Unfortunately, from the stand point of a correlation, the opposite causal relationship (high productivity -> high wages) is equally valid.

The other possibility is that both high wages and high productivity are correlated to a third factor.  I would suggest "labor quality".  By doubling wages, Henry Ford insured that he would have his pick of the best workers available.  If someone wasn't cutting it, two more people would be waiting to take their place.  According to this hypothesis, if labor contracts do not allow a dynamic market, the correlation between high wages and labor quality will break down.  Without that correlation, there is no connection between wages and productivity.  The apparently stagnating auto industry workforce in Detroit suggests that the union/management combination has broken the link Henry Ford created.