South African manufacturing firms in transition

We seek to provide a more detailed understanding the dynamics of change of firms in the post-apartheid era through the examination of the results of two firm-level surveys in the eThekwini Metro area. This paper aims to fill a gap in the South African labour market literature: our understanding of the demand side of the labour market. We examine the characteristics of firms which have grown their employment in order to test the local application of firm and labour market theory. An important finding is that subcontracting matters for employment growth. Those firms in the sample that outsource aspects of production to subcontractors are more likely to have grown employment. The flexibility that subcontracting provides, in terms of responding to changes in workload, is one of the key reasons that firms engage in subcontracting. There are some plausible hypotheses as to how this relationship works. First, subcontracting allows firms to outsource lower-skilled work, and achieve the scale necessary to employ high-skilled full-time staff. Second, subcontracting allows the firms to access high-skilled individuals that they would otherwise not have the operational scale to retain on a full-time basis. We also examine the role of exporting and value chain integration in employment creation.