To put it in a nutshell, with the way I understand it. Hiring, keeping an employee employed, dealing with labor-law issues, paying for harassment/dispute lawsuits, difficulty in firing misbehaving or under-performing employees are all costs. Costs that a company would not necessarily be able to burden.

So what happens is that all that risk, red-tape, etc gets consolidated in the form of an employment intermediary (for lack of a better term). So they consolidate, optimize and package all that risk and cost into a single figure which is both cheaper (due to economies of scale and concentrated knowledge) and easier to deal with and monetarily quantify. Companies then save money by rather hiring the employment intermediary instead of the actual employee.

I clearly see it immensely in South Africa. Even in the software-development industry, where software-development firms are called "body-shops" because all they do is re-sell developer-hours rather than working on projects. The client explicitly interviews, selects and has the developer sit in their offices under their management team with their hardware, etc. It's made worse in South Africa because there is no at-will employment, and the government has made it ridiculously difficult to dismiss/fire employees even for perfectly reasonable and straightforward reasons.