Prison labour

By Eric Crampton 18/08/2015


Salient’s Emma Hurley asked me for comment on the economics of prison labour. Victoria University contracts with one of the prisons for laundry services, and the prisoners are not there paid very much. She asked me whether that’s acceptable and whether it has negative effects on the rest of the economy.

Her story is here. She didn’t wind up having room for my comments, but here’s what I’d told her.

I’m afraid I don’t have any clear-cut answers for you, only trade-offs.
Working while in prison can be an important part of prisoner rehabilitation. Getting work experience, having to meet set hours, and getting a supervisor’s attestation of the worker’s ability are all really important in helping somebody make the transition into work from criminal activity – and that’s not an easy ask, where a lot of employers are really scared of hiring a former criminal.
The problem then is whether the prisoner’s labour is really worth the minimum wage. A lot of criminals were not in paid employment prior to incarceration. I do not have New Zealand data to hand, but I know that when I’d looked at some Australian statistics a few years ago, at least in one state, somewhere around 90% of those in prison were not in paid employment in the month before they were tried. Those coming from a criminal background tend not to have characteristics that employers find desirable. You would have a very difficult time in getting anyone to hire prisoners at the minimum wage, and you would then lose out all of the rehabilitation benefits that come from being in employment.
Finally, you never ever want prisoner labour to be a profit centre for prisons. There’s a really bad history with that kind of thing in some parts of the US: under the convict lease system in American post-civil-war reconstruction, prisons would lease out convict labour and pocket the gains; they then had very strong incentive to have a lot of people in prison. If a low wage paid to prisoners is a way of providing profits to either public or privately run prisons, rather than a way of ensuring the broadest range of prisoners are able to benefit from employment, then that can be pretty undesirable.
So we’re then firmly into trade-off territory. The higher the wage that prisoners make, the fewer of them that will gain benefits from work experience. Worse, the ones most in need of it will be the first ones shut-out. If the wage is very low and that results in prisons being able to earn strong profits from leasing out prison labour, that provides pretty bad incentives for the government: keeping people in jail should not be a profit-centre for the government. But if the wage is low because prison labour is not particularly productive and because the proceeds from the contracts run by the prisons are used for job training and skills enhancement for those in prison-based employment, that’s entirely different. I just do not know enough about the prisons’ financial statements to be able to make any calls there.
Where prison labour makes up only a small fraction of the overall labour market, I do not expect it could have any large negative effects elsewhere in the economy. If prison contractors are the most effective way of providing things like laundry services, that could have less to do with labour costs and more to do with that they would already have huge boilers and wash facilities for their own needs that they could also put to contract work – again, I do not know, but it is likely to matter and oughtn’t be ignored. Private laundries would then be a bit smaller than otherwise and people who would have been employed in private laundry services would be employed elsewhere instead.
It’s probably best to think of the problem in two parts. The first part of it is sorting out the best rehabilitation set-up for prisoners, which can involve prison labour. Set the wage rates in prison to make sure that the prisons provide rehabilitation most effectively – and while watching that prisons are not using prison labour as strong profit centre. If that is all set correctly, then we can come to the second part. You can really think of prison labour in that case as being little different from trade with a foreign country with different cost structures. It will affect what work is done in the non-prison-sector in New Zealand, but should not affect the total quantity of work. When Vic can save a bit of money on laundry, they’ll spend it elsewhere, or students will be charged a bit less than otherwise, or the government will have to give a bit less money to Vic. All of those have positive employment consequences elsewhere in the economy that are not as visible as whatever effects obtain on the laundry industry, but are every bit as real.