Once a quiet, medium-sized city at the center of a thriving agricultural area, San Jose was transformed in less than 30 years into a huge metropolis and a phenomenon in U.S. economic history. As the result of the computer revolution, San Jose became the capital of the "Silicon Valley," a vast complex of electronics industries that stretches throughout California's Santa Clara County. From 1950 to 1980, a period of tremendous growth and prosperity, the population of San Jose increased fourfold. Like other major urban areas, however, the city has been forced to confront the problems that come with unbridled development: traffic congestion, air pollution, housing shortages, and a strained infrastructure. A 1985 recession in the Silicon Valley produced a stagnant economy, from which the city recovered by the twenty-first century. San Jose consistently ranks high in polls that rate cities for business climate, livability, and fun.

The large concentration of high-technology engineering, computer, and microprocessor companies around San Jose has led the area to be known as Silicon Valley. As the largest city in the valley, San Jose has billed itself "the capital of Silicon Valley." Area schools such as the University of California, Berkeley, University of California, Santa Cruz, San Jose State University, San Francisco State University, California State University, East Bay, Santa Clara University, and Stanford University pump thousands of engineering and computer science graduates into the local economy every year.High economic growth during the tech bubble caused employment, housing prices, and traffic congestion to peak in the late 1990s. As the economy slowed in the early 2000s, employment and traffic congestion diminished somewhat. In the mid-2000s, traffic along major highways again began to worsen as the economy improved. San Jose had 405,000 jobs within its city limits in 2006, and an unemployment rate of 4.6%. In 2000, San Jose residents had the highest median household income of any city with a population over 300,000, and currently has the highest median income of any city with over 280,000 people.