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Silicon Valley is home to the most dynamicindustriesintheCaliforniaeconomy . Theseindustries ——the high-tech sector —— are drivenby innovation， and each new wave ofinnovationisusuallyled by creativeentrepreneurs starting new firms.

DuringSilicon Valley's dramatic economic growth fueled by the internet boom and business investmentininformation technology， employment in the region'shigh-techsectortripledbetween 1995 and 2000. The economic boom gave rise to many new firms， drawing employees into high-tech jobs from other regions and other industries. In addition to longer-term structural changes in high-tech industries， this period of growth witnessed increased shares of both small and new firms in the region's industrial composition. By 2000， the region's unprecedented growth came to an abrupt end， and the Bay Area endured the heaviest employment losses of any urban high-tech center in the U.S. The highly skilled， highly paid tech workforce faced high levels of unemployment， and many left the region entirely.

Silicon Valley today faces more competition than ever from other high-tech regional economies， both domestic and international. Supportive policies have been implemented in metro areas all over the country， seeking to gain a bigger piece of the high-tech economy. How to keep Silicon Valley growing is a big challenge for California's policymakers. This is especially true today， with the valley struggling through a recession.

Policies directly related to Silicon Valley include federal government RD spending and immigration policy， state government RD spending and education policy， and local government land use policy. In addition， governments need to help in other areas where the private sector lacks the capability to solve certain problems， such as building infrastructure and preventing further energy crises.

Some of policy recommendations are given to the local and state government to deal with the situation:

Promote technological innovation .

University research has always been a major source of innovation， and state government should continue its strong support to research universities. Large budget cuts for the University of California would severely affect the prospect of the high-tech sector off campus. The California delegation in Washington， D.C.， should place a high priority on securing research and development dollars for California from the federal government.

Encourage firm founding. Job creation in Silicon Valley is primarily achieved by new firms. State and local governments should help create a favorable atmosphere for such firms. Offering tax breaks， opening industrial parks， building high-tech incubators， and providing seed capital for commercialization of research are widely used policy levers. Continuously improving quality of life in Silicon Valley and the Bay Area as a whole is also crucial for the vitality of the high-tech economy in this region.

Look beyond Silicon Valley. State and local policies should take into account connections between Silicon Valley and the rest of the state economy. For example， many people who work in Silicon Valley live a considerable distance from it， seeking more affordable housing. Thus， housing development and transportation policies in neighboring Bay Area cities can help solve Silicon Valley's housing problems. State government could provide incentives for large firms to set up their manufacturing or distribution arms within the state， and local governments could be more proactive in accommodating businesses branching out from Silicon Valley.

Maintain a dynamic labor pool. Some high-tech industries are subject to explosive growth， creating a high demand for certain types of technical workers within a short period of time. For example， employment in the software industry in Silicon Valley increased from 48，500 to 114，600 between 1990 and 2001. Whether Silicon Valley can evolve rapidly hinges upon whether its labor force can quickly upgrade its skills or meet completely new demands. Employers in Silicon Valley accomplish this by recruiting new talent not only from local universities but also by hiring skilled immigrants， who have played an important role in Silicon Valley's growth. The immigrant pool has proved to be a major source of innovators and entrepreneurs. Immigrants also provide a large reserve of high-quality engineers and scientists ready to satisfy sudden surges of demand in certain industries. State government in cooperation with federal authorities should keep the door open to international talent， both at local universities and in the high-tech industries. This has emerged as a particularly crucial issue because immigration policy has now entered the equation of homeland security.