Dec. 30 (Bloomberg) -- California Governor Arnold Schwarzenegger will propose a $1 increase in the minimum wage for the most populous U.S. state, reversing a position he took in two vetoes, a member of the governor's administration said.

Under Schwarzenegger's plan, the $6.75 minimum wage would rise by 50 cents in July 2006 and 50 cents a year later, the person said. The governor plans to make the proposal during his annual ``state of the state'' address on Jan. 5.

Schwarzenegger, 58, twice vetoed minimum-wage increases because they included future adjustments tied to inflation. The Republican's approval ratings plunged to their lowest levels after all four ballot measures he endorsed were rejected by voters in November. After the election, Schwarzenegger vowed to work more closely with a legislature controlled by Democrats.

``While this is a step in the right direction, it doesn't make up for the ground that some of the state's hardest workers lost when the governor vetoed two previous attempts to raise the minimum wage,'' Speaker of the Assembly Fabian Nunez, a Los Angeles Democrat and a former labor organizer, said in a statement.

Schwarzenegger spokeswoman Julie Soderlund declined to comment on the minimum-wage proposal.

Ballot Measure

Schwarzenegger in September vetoed a bill that would have boosted the minimum wage to $7.75 an hour within two years, the highest of any U.S. state, with further increases tied to the federal Consumer Price Index. He vetoed a similar bill the previous year.

In October, unions launched a petition drive to put a measure on a statewide ballot that would raise the minimum wage to $8.75 over two years and annually adjust the wage for inflation.

Bill Dombrowski, president of the California Retailers Association, said polling done for his group showed nearly 80 percent support for the measure.

``The reality is that there is going to be a minimum wage increase here in California,'' Dombrowski said today in a telephone interview. ``This is a good compromise for the business community.''

Business Climate

Schwarzenegger won office in a 2003 recall election on a campaign to improve the state's business climate, generate more tax revenue and wipe out deficits that left California with the lowest credit rating of all U.S. states.

The California Chamber of Chamber, which endorsed Schwarzenegger during his run for office, has said a $1 increase would cost businesses as much as $2 billion in added labor costs and dissuade companies from doing business in California.

Proponents have said an increase would lower the number of people on welfare and bring an economic stimulus as workers spend their new disposable income on taxable merchandise and services.

Seventeen U.S. states set the minimum wage for workers above the $5.15 federal minimum. San Francisco voters in November 2003 raised the minimum wage in the city by $1.75 to $8.50.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net.

Last Updated: December 30, 2005 18:01 EST