Why is Silicon Valley still losing jobs?

Could the tech industry's own creations be the main reason Silicon Valley is still losing jobs?

Or is offshoring to blame for the fact that new companies and healthier profits at existing firms aren't translating into more workers in the computer industry's historical home?

It's a combination of both, according to Russell Hancock, president of a nonprofit group that closely studies California's Silicon Valley.

Hancock's organization, Joint Venture: Silicon Valley Network, is putting the finishing touches on a report that shows that the region lost 1.3 percent of its jobs and weathered a 1 percent decline in average pay last year.

The job hemorrhaging was less severe than in the previous two years. But it is still curious, given that Silicon Valley saw a net gain of almost 20,000 new companies in 2001 and 2002, and venture capital investment in the region increased by 15 percent last year, according to the report. What's more, key area companies like Intel, Apple Computer and Yahoo have been reporting better bottom lines.

Part of the explanation is that tech firms are shipping work to lower-wage places like India, Hancock said. For example, companies such as Intel, Hewlett-Packard and Yahoo have established research facilities in Bangalore, India.

In addition, companies "have learned to do more with less," Hancock said. In other words, productivity gains are helping employers avoid bringing on workers even as they become busy. And technology itself is at the heart of the productivity boost, Hancock argues. One example: an engineer could zap a massive design document across the country or the world as an attachment to an e-mail. "It's now possible to exchange huge troves of data instantaneously without human support," he said.

Yet another factor in play is that information technology employers are opening up shop in lower-cost regions of the United States, like Oklahoma City.

Hancock seems less worried about Silicon Valley losing its starring role in the tech industry than he is about the teachers, firefighters and other service-sector workers who increasingly can't afford to live in the area. He suggests that San Jose and the surrounding cities could become a sort of Manhattan, where corporate headquarters exist but many workers commute to jobs.

Housing "can't grow at the rate we need it to grow," he said. "That's the Silicon Valley story, and it's a tough one."