What the Facebook IPO Reveals About the Real Economy

The Facebook economy helps create jobs, but only for a select group of Americans.

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A lot of its users might be struggling, but there's certainly no recession at Facebook. In fact, times could scarcely be better.

As it prepares for a long-anticipated initial public offering, the eight-year-old social media site stands in sparkly contrast to the broader, and grayer, U.S. economy. When Facebook's $5 billion IPO finally goes through, probably in late spring, it will be a welcome jolt of economic energy that could stimulate the stock market and create 1,000 new millionaires. Facebook's billionaire founder, Mark Zuckerberg, will take another step toward the rarified stratum of technology revolutionaries that includes Steve Jobs, Bill Gates, and Google founders Sergey Brin and Larry Page.

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With the unemployment rate at 8.5 percent and jobs the top issue in this year's elections, Facebook is the kind of company the nation ought to celebrate. It employs 3,200 people and plans to hire many more, with its headcount rising about 50 percent per year, according to Facebook's official filing with the Securities and Exchange Commission. It helps create many more jobs by buying equipment, leasing data centers, and, probably soon, financing the purchase of a lot of Porsches and BMWs. Facebook has also created a new social-media universe that supports games, advertising tools and other applications that didn't even exist a few years ago.

Facebook, which has a whopping 850 million users, has succeeded without government subsidies or any of the other incentives often dangled to encourage growth and investment. That makes it a model enterprise in the "knowledge economy" that many economists believe is the new pathway to prosperity. But Facebook's success also delineates the growing wall between winners and losers in a Darwinian environment that favors skills many workers don't have, and never will. The Facebook economy, in fact, is something of a closed universe that richly rewards insiders but has limited spillover to mainstream America.

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Facebook clearly generates the kind of "multiplier effect" that boosts growth and makes free-market purists grin. A 2011 study by the University of Maryland's Smith School of Business found that Facebook was responsible for about 183,000 new jobs per year in the United States, and $12 billion worth of economic activity. That's because of all the apps and games designed for Facebook—such as Zynga's "Words With Friends" and the Spotify music app—plus the enhanced activity that myriad other Web sites experience when they become integrated with Facebook. Other tech firms, such as Apple and Twitter, generate a similar multiplier effect, as outside developers exploit their technology to offer a wide range of new offerings for consumers.

Those new jobs tend to be just the sort of high-skilled, high-paying jobs that help keep the economy healthy. The University of Maryland study, for instance, found that the average salary earned by a worker in the Facebook economy is about $58,000. That's 35 percent higher than the typical pay of a full-time American worker.

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But many Americans lack the skills to participate in the Facebook economy. As Facebook points out in its SEC filing, it's mainly looking to hire "software engineers, product designers, and other personnel with certain technology expertise." People with those types of skills tend to be college graduates under 40. That's good news for young workers making a fresh start, with the flexibility to try new things and go where the jobs are.

But many older or less-educated workers will never benefit from the Facebook economy, except, perhaps, to use the site to look for a job. Many of the nation's 14 million unemployed lack a college degree, with little hope of obtaining the sophisticated skills the knowledge economy demands. And America's tech darlings will do little to generate the kinds of jobs in construction or manufacturing that seem necessary to put millions back to work.

Facebook, of course, is mainly a service company that does little manufacturing, similar to Google and Twitter. Apple sells millions of computers, music players and other devices, but virtually all of those are assembled overseas. A recent article in the New York Times explained how China's manufacturing barons wooed Apple with flexibility, scale and responsiveness that's unknown in the United States—which led to thousands of Chinese jobs while signaling a lost opportunity for America.

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President Obama, meanwhile, is calling for aggressive new federal efforts to retool America's manufacturing base and construct an "economy built to last." Perhaps Washington will roll out a few new programs that help with training and boost hiring. But the most lasting wealth is the kind that materializes without help from the government, like the Facebook economy has. Unfortunately, there's not enough of that.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success, to be published in May. Follow him on Twitter: @rickjnewman