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By Zelie Pollon

SANTA FE, New Mexico (Reuters) - When Santa Fe's minimum wage rises to $10.29 an hour on March 1, the New Mexico capital will have the highest local wage requirement in the country, according to the National Employment Law Project.

Santa Fe, a high desert oasis where the well-heeled buy second homes and tourists flock for art galleries and world-class opera, will surpass San Francisco, which requires workers to be paid at least $10.24 an hour.

Santa Fe's increase from $9.85 an hour stems from a city ordinance that ties wage requirements to a consumer price index for the western United States. As the new rate -- announced this month by the city -- approaches, city officials are celebrating, but business groups are bracing for what they say is another unfair hit.

"We think it has made a big difference for low-income people and for the value of work in Santa Fe," Santa Fe Mayor David Coss told Reuters. "I think it should and could be repeated around the country."

Coss said the city maintains the lowest unemployment rate in the state at 5 percent and that the ordinance has not hurt businesses. Since Santa Fe's ordinance was passed, other cities and the state itself have followed suit. The city of Albuquerque and the state raised the minimum wage to $7.50 an hour, above the federal minimum wage of $7.25 an hour.

"The argument that it's going to hurt your economy - which has been made since the beginning -- has pretty much been discredited," Coss said.

Some business groups strongly disagree.

"I would invite the mayor to take a drive down any commercial street in New Mexico to look at the amount of commercial space that is available and to talk to employers about the decisions they have to make regarding benefits or cutting employees," said Simon Brackley, president and CEO of Santa Fe's Chamber of Commerce, which has about 900 members.

The mayor, Brackley told Reuters, was "out of touch with the reality of doing business in Santa Fe."

Brackley wants Santa Fe to be regulated by the same policies as the rest of New Mexico or for the city's minimum wage to be capped at the current rate, saying the city's ordinance was an incentive for students to drop out of school.

"When they do that, they jeopardize their earning potential for their entire career," Brackley said.

The requirement known as the Living Wage Ordinance went into effect in 2003, at that time requiring an hourly minimum wage of $8.50 for all businesses with 25 or more employees. The rate was to have increased to $10.50 an hour by 2008.

But in 2007, the city reached a compromise with business groups. The arrangement required all businesses to follow the ordinance, but linked the rate increase to a consumer price index. For 2012, that rate is $10.29.

The cost of living in Santa Fe County is 18 percent higher than the national average, according to the city.

For Collin Stapleton, 26, who works a minimum-wage job at a Santa Fe video store, the change "won't make a big difference, but it'll be nice." Without the ordinance, he'd have to work significantly more hours or have a job that requires more education, he said.

Santa Fe resident Mattie Templeton, also 26, does work two jobs. She earns minimum wage plus tips serving coffee and gelato and has a second job helping restore furniture.

"Here in Santa Fe, you could never survive off the minimum wage," she told Reuters.

(Reporting By Zelie Pollon; Editing by Corrie MacLaggan and Cynthia Johnston)

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