With America's Asian allies making better products at lower prices, state legislators debate ways to build a more competitive workforce.

The exodus of America's service jobs to low-wage countries is spurring policymakers and business leaders to rethink education reform and job creation and training.

A February 2007 report published by the Brookings Institution, a Washington-based think tank, predicts that 28 metropolitan areas, with 13.5% of the nation's population, are likely to lose between 2.6% and 4.3% of their service jobs to low-wage countries between 2004 and 2015. Those metro areas that could see the highest job losses, above 3.1%, are Boulder, Colo.; Lowell, Mass.; San Francisco; San Jose; and Stamford, Conn.

Robert Atkinson, a senior fellow in economic studies at Brookings, and Howard Wial, a senior research associate, authored the report, The Implications of Service Offshoring for Metropolitan Economies. Using occupational data, they estimate that some Northeast and West cities will lose at least 17% of their computer programming, software engineering and data entry jobs during this time period.

"The most important thing states can do is support scientific research and development," Wial says. This can be done, he says, via direct spending and tax credits.

Public money should be diverted to industries that demonstrate growth, or the potential for growth, Wial adds. "For example, biodiesel fuel might be something for heavily agricultural states to look at."

While state officials have limited influence in shaping foreign trade policy, many are taking steps to create more jobs, retrain displaced workers and improve public education and higher education to attract new businesses and retain existing ones.

Utah, for example, is trying to build a competitive workforce by making public schools more accountable, such as toughening graduation standards, says Rep. Sheryl Allen (R). At the university level, state money is being allocated to hire additional faculty to train more engineers, nurses and special education and math teachers—professions in short supply.

Utah is also rewarding scientific innovation. Last year, legislators initiated an economic development program to award money to research universities conducting cutting-edge technology, with the hopes of attracting top researchers.

"We are trying to nurture an intellectual spark that will result in new technologies and companies," Allen says.

Utah also recently opened a new world trade center to foster national and international trade, she adds. The state also offers incentives for companies considering relocating to Utah.

All these initiatives take money, and Utah's legislators are in the fortunate position of enjoying an economic surplus of more than $1 billion for both 2006 and 2007, Allen says.

The northeast has been hit particularly hard by the loss of manufacturing jobs, and Rhode Island is no exception.

In response, state resources have been going to workforce development, says State Sen. Daniel DaPonte (D). "As jobs began to disappear and we had unskilled workers looking for work, we realized we had to train them to be competitive for service sector-type jobs," he says.

Those jobs included banking, insurance, and health care.

"The unfortunate reality is that competition is fierce, whether it's the offshoring of manufacturing jobs or service call centers moving to India," DaPonte says. "The challenge is the high cost of living in the northeast."

With Rhode Island the home to top colleges, like Brown University and Rhode Island School of Design, state officials are trying to entice top-notch companies so college graduates will remain. To this end, the state legislature began phasing out the capital gains tax in 2001. Lowering property taxes is also necessary, believes DaPonte.

"We need to get to a level competitive with other states," he says. "Part of the challenge is making the public understand that if we're not competitive, companies will go knock on someone else's door."