SACRAMENTO - California minimum wage workers would be the highest paid in the nation -- at $8 an hour -- under an agreement reached Monday between Gov. Arnold Schwarzenegger and Democratic legislative leaders.

The minimum wage would be increased by $1.25 an hour over the next 18 months -- bumping it from $6.75 to $7.50 in January and another 50 cents in January 2008.

Both sides compromised: Democrats had asked for a $1.50 an hour hike, while Schwarzenegger had offered a $1 increase. Democrats also dropped earlier efforts to index future increases to the inflation rate.

The increase will help women and minorities, who form the majority of minimum wage workers, said Assembly member Sally Lieber, D-Mountain View, who sponsored the legislation that will be taken up in the Senate on Thursday before going to the Assembly.

``This is an important step forward for working women and workers of color in our state,'' she said. ``We have a moral obligation to ensure that the minimum wage keeps pace with federal poverty guidelines. This bill does that.''

The deal comes after Schwarzenegger twice vetoed bills calling for increases in his first three years in office. Earlier this year during his State of the State address, however, the governor said it was time to raise the wage because the economy was now strong enough.

If you make a dollar more an hour but everything else goes up that has employees on min wage such as grocery stores, fast food, retail stores, gas stations, then it really didn't help you at all. If anything, your cost of living has now surpassed your income even further. I think it's a really DUMB move!