Each LMIP Briefing is an evidence-based contribution to informing the development of a skills planning mechanism for South Africa. Briefings showcase our cutting edge research and aim to highlight key trends and potential implications from LMIP research projects.

LMIP Briefing 23

Temporary Employment Services in South Africa

The post-1994 labour market environment in South Africa is marked by a sharp rise in the use of temporary employment services (TES). The TES sector has grown rapidly and is now a key feature of the South African economy and its labour market, yet surprisingly little academic research has been undertaken on the sector. We attempt to go some way towards closing the gap, by focusing this report on trying to understand the nature of employment changes and their impact, in the ‘labour broker’ sector.

By drawing data for most of the analysis from representative labour force surveys, we offer: an assessment of the role played by the TES sector in contributing to employment and output growth in post-apartheid South Africa; and a consideration of the characteristics of TES workers and the potential welfare consequences of this type of employment.

We presented aggregate and sectoral employment trends relative to the TES sector over the past nineteen years. Of particular interest is the growth of the tertiary sector through the Finance and Business service sector that encompasses TES provider employment. We also examined the characteristics of TES workers by occupation, age and the nature of contracts. Using various data sources to examine TES firm size, we assessed whether there is a small business bias. We also considered the effect that TES employment has on household welfare and poverty status, including the potential welfare effect, given potential employment loss in the sector. And finally, we examined the contribution of TES employment to GDP in comparison with other sectors of employment.

Results from research around South Africa’s labour regulatory regime, the strength of the union-wage premia, and so on, remain relatively unimportant when compared against the rapid rise in the use of TES.  Examining the employment growth in the Finance and Business Services subsector gives an indication of high levels of employment growth that arise from the TES industry.

Yet the lack of research on the industry has left the public discourse uninformed and misleading with regard to the characteristics of TES workers. It is clear that contrary to perceptions, workers in TES are medium-skilled and largely in services and sales type occupation workers, and not simply unskilled workers in elementary occupations.  Further, as TES has grown, it has absorbed young people at a rate faster than observed for overall levels of employment, and within the Finance and Business Services sector. In addition, labour force data suggests that TES workers are more likely to be permanent rather than working on a limited contractual basis. In this empirical profile of a fast growing, semi-skilled and youth-intensive employer – the notion of the industry being dominated by the “bakkie brigade” is erroneous in the extreme. The predominance of SME firms as well as the statistically meaningless difference in forms of employment further reinforce the need to re-centre economic policy and labour debates around the sector.

In terms of the impact of TES more broadly, we find that TES contributes to both household welfare as well as economic growth. TES earnings have kept between 3-7 % of households above the poverty line, constituting over 300 000 households in the economy. Households with TES earnings were found to be less badly-off than households without TES earnings, suggesting the pro-poor impact of TES employment. Furthermore, the TES sector contributed around 9% to GDP in 2013, which is significant in the context of South Africa’s low levels of economic growth. The TES industry, through offering flexible employment arrangements, has become an important driver of employment and output growth. This should remain a key consideration in any debate around regulation, or altering the nature of the sector through exogenous policy interventions.

Haroon Bhorat, Aalia Cassim & Derek Yu .  2016. Temporary Employment Services in South Africa: Assessing the Industry’s Economic Contribution. LMIP report.