If Stephen Levy were to write a book about Silicon Valley, he would be likely riff on the title of a Dickens novel. He sees two economies going in opposite directions.

"At the high-tech end, the real story that we see is a tale of two economies," says Levy, an economist who directs the Palo Alto, California-based Centre for Continuing Study of the California Economy. As Levy sees it, the contradictions are most keenly revealed in the statistics about tech professionals who have jobs and those collecting unemployment checks. The tech Mecca continues to lose jobs in the fields of software, semiconductors, and computer and communications hardware. But at the same time, average pay for people working within Silicon Valley's different tech sectors climbed in 2003, the last year for which such recorded data are available.

Levy advises the non-profit group Joint Venture: Silicon Valley Network, which recently released its annual index on the region. The index shows a curious combination of strengths and weaknesses. For example, venture capital investment in Silicon Valley rose by 15 percent last year, and the region now receives 35 percent of the nation's venture capital, up from 14 percent in 1995. What's more, job losses were less severe than in the previous two years. On the other hand, the gap between low-income households and other households increased. And housing became less affordable, especially for the poorest residents.

ZDNet UK sister site CNET News.com spoke to Levy about the state of Silicon Valley's economy, challenges the area faces from other emerging technology hubs and the first thing he'd do to improve Silicon Valley's prospects. (Hint: It's a lot lower-tech than a new computer chip or piece of software.)

Q: Silicon Valley lost 1.3 percent of its jobs last year, and average pay went down by 1 percent. Is it a sign that the high-tech economy is in trouble?
A: The job levels have fallen really substantially. The headline is that since 2000, Santa Clara County lost over 200,000 jobs. It lost a little over 20 percent of its job base, and by comparison, that's the largest amount that any metropolitan area lost since the Great Depression. So 2004 was a very modest continuation of those losses when other areas were turning around. Wages went up in high tech and down a little bit overall.

At the high-tech end, the real story that we see is a tale of two economies. If you ask how high-tech companies are doing, their sales are up, and the profits are often up, and the exports are up. And within the high-tech industry, the wages are up, despite that overall figure. Kind of everything is up but job numbers. And that's a huge "but". So people who are working are starting to do better. And then you have the rest of the economy -- the people who are waiting to see job growth. And that's not happening.