What does "更生" in "自力更生" mean? I've seen the phrase 自力更生 used to mean self-reliance, but am confused by what the function of the last 2 characters is.
更生 means on its own to revitalize, or to revive. In this context, 自力更生 idiomatically means "revitalize through our own efforts". 

An example of its usage is in the communist saying "独立自主、自力更生". iCiba translates this as "build socialism independently and with the initiative in our own hands and through self-reliance" (which I find awkward, but it gets the point across). Ultimately, 更生 states that you're revitalizing something, in this case a country.