California’s $6.75 per hour minimum wage will rise $1.25 – less than sought by Democrats but more than Gov. Schwarzenegger had originally wanted – after the two sides reached an agreement on Monday.

The raise is the first since 2004 and will take effect in two stages, rising 75 cents on Jan. 1 and another 50 cents on Jan. 1, 2008. The federal minimum wage is $5.15 an hour.

The governor’s had original proposed that the wage increase $1 an hour but agreed to the $1.25 figure after Democratic leaders dropped their demands to index the wage to inflation.

“I have always said that when the economy was ready, we should reward the efforts of California ‘s hard working families by raising our minimum wage. This is another sign California is coming back stronger than ever and exciting news for the people of our state,” said Schwarzenegger, in a prepared statement.

Despite the compromise, Art Pulaski, executive secretary-treasurer of the California Labor Federation, criticized the governor for the years it took to achieve a compromise agreement.

“The long wait for an increase has hurt workers,” said Art Pulaski, Executive Secretary-Treasurer of the California Labor Federation. “Three years of inaction by Arnold Schwarzenegger caused the minimum wage to lose its purchasing power.”

The governor has been widely seen as moving his policies toward the center as he approaches his November gubernatorial contest with Democratic state Treasurer Phil Angelides. The Democrat candidate has said he would support adjusting the minimum wage to account for inflation.

The California Chamber of Commerce has opposed any increase in the minimum wage, but a spokesman for the group lauded Schwarzenegger for “standing firm” against tying the minimum wage to inflation.

“Raising the minimum wage is one thing, but locking in automatic increases year-after-year, regardless of the condition of the economy or the health of a business, is another entirely.” spokeman Vince Sollitto told the San Jose Mercury News.