How significant is intersectoral outsourcing of employment in South Africa?

South Africa, like many other middle-income countries as well as most upper-income countries, has seen an increase in services and fall in manufacturing as shares of total employment. There has been speculation about the extent to which these changes actually represent a genuine structural shift, as opposed to a "statistical artifact" deriving from the domestic outsourcing of activities from manufacturing to services. Very limited evidence is available as to how much of the apparent changes in the sectoral composition of employment are explained by intersectoral outsourcing. This article develops a methodology, using household and labor survey data, to analyze the extent of intersectoral outsourcing of specific labor-intensive activities in South Africa from 1997-2007. It is shown that the relatively high growth in services employment is driven by expansion of employment of cleaners and security guards, and in particular by outsourcing-type reallocation of these activities from manufacturing and the public sector toward private services. Once outsourcing is accounted for, employment seems to have grown at similar rates in manufacturing and in private services. The analysis has implications for understanding changes in the sectoral structure of middle-income economies, and whether services employment is as dynamic as it appears to be.