The proposal would increase the minimum wage to $6.75 per hour starting Jan. 1, 2006, and then another 50 cents to $7.25 a year later.

House conferees had proposed an increase to $7.25 per hour next Jan. 1, and to $7.75 a year later. However, the House's original draft of the Senate bill prevailed.

The compromise measure, which would give Hawai'i one of the highest minimum wages in the nation, now goes to the floor of both houses for a final vote.

A job should be "a bridge out of poverty, an opportunity to make a living by working," according to the bill. "But for minimum wage workers, especially those with families, it is not."

The inflation-adjusted value of the minimum wage is 24 percent lower today than it was in 1979, and recent increases in the minimum wage have not restored the lost value, the bill said.

"We are disappointed the Legislature didn't take a more balanced approach," said state Labor Director Nelson Befitel.

He said the bill does not give small business a break on the unemployment tax as the Lingle administration had recommended.

"It is a cost of living issue and there are other ways to deal with that like raising the standard deduction," Befitel said. "We will have to take a look at it and decide whether to recommend that the governor veto it or not."

Gov. Linda Lingle said she also doesn't understand why the Legislature is resistant to lowering the state's highest-in-the-nation unemployment tax, considering it would not cost the state anything.

Nearly $400 million has accumulated in the state's unemployment tax insurance trust fund, more than enough to maintain yearly unemployment costs for the next three years, she said.

"Instead of the money just sitting idle in state coffers, companies could use the savings for increased wages, added benefits and the creation of new jobs," Lingle said.

The minimum wage bill is "detrimental to businesses, particularly small businesses who create jobs," said Sen. Sam Slom, R-8th (Diamond Head-Hawaii Kai) and head of Small Business Hawaii.

"The bill provides no breaks or benefits for employers," he said.

The increase will hurt employees, especially those trying to get into the marketplace for the first time, and will "price people out of jobs," he said.

In addition to paying increased wages, employers also pay various mandated benefits that add another 30-50 percent to their employment costs, Slom said.

The minimum wage was raised to $5.25 an hour on Jan. 1, 1993; to $5.75 on Jan. 1, 2002, and to the current $6.25 a year later.

The federal minimum wage of $5.15 an hour has not changed since 1996. Last month, the GOP-controlled U.S. Senate defeated a labor-backed increase in the $5.15 wage floor, saying it would only hurt the entry-level workers it was designed to help.