Project Syndicate: Another reason your wages are low: it’s cheaper to hire convicts

NEW YORK (Project Syndicate) — Blaming manufacturing-job losses on low-wage foreign competition, or, increasingly, on automation has become a staple of populist politics in developed countries. Nowhere is this truer than in the United States, where President Donald Trump campaigned on the issue in 2016 and has since launched a trade war with China.

But U.S. workers have long faced another source of competition much closer to home: prison labor.

Many Americans may assume that the country’s convict-labor system is a thing of the past, especially given unflattering Western media coverage of other countries’ reliance on prison labor to produce export goods.

Prisoners are producing furniture for the University of Colorado for $2.45 per day. What are they, if not slaves?

But in 2005 — the most recent year for which a fairly complete set of countrywide data is available — America’s convict-labor system employed nearly 1.4 million inmates, of which about 600,000 worked in manufacturing. That is 4.2% of total U.S. manufacturing employment.

America’s prisons represent a large and growing pool of available labor: since 1932, the number of inmates in the U.S. has soared, from approximately 140,000 to more than 2.1 million in 2014.

They work for companies like Walmart WMT, +0.70%  , AT&T T, +0.30%  , Victoria’s Secret LB, +3.04%   , and Whole Foods Market AMZN, +0.51%  ; yet they earn less than $1 per hour, on average — far less than the legal minimum wage for non-incarcerated workers.

As a result, convict labor is not only exploitative; it also distorts market competition.

This is precisely the complaint that has been leveled against China since its accession to the World Trade Organization in 2001 — an event now widely referred to as the “China shock.” Yet, over the course of its history, convict labor has affected U.S. manufacturing at least as much as the China shock.

That effect was apparent from the 1870s; in 1886, prisoners constituted up to 2% of all manufacturing employees and accounted for 4.2% of total manufacturing output. Unlimited working hours and physical punishments, together with new industrial machinery, were a formula for super-profits.

Private forms of convict labor were first abolished by 1941; however, the practice was reintroduced in 1979 in order to finance the growing prison population. Labor markets were again affected.

One might expect that prison labor became most prevalent in the South after the Civil War, given the region’s history of convict leasing and chain gangs. But the overwhelming majority of inmates were employed in the Northeast and Midwest in 1886-1941, producing manufacturing goods.

While convict labor came to be used to some extent in almost all industries, it was concentrated in only a few.

For example, in 1886, 10% of all furniture was produced in prisons, though most employed convicts produced clothes and shoes. In the same year, in South Carolina, prisoners produced more clothes than free laborers did.

Among free laborers, women — who tended to dominate the apparel and shoemaking industries – suffered the most, as inmates filled their jobs and drove down their wages. And male inmates could not use their newly acquired skills after their release, because apparel and shoe manufacturers tended to favor women when hiring free labor.

When the China shock came, its overall impact may have been compounded by its effect on convict labor. From 2000 to 2005, the number of convicts employed in manufacturing increased by 92%, as some firms embraced cheap prison labor in an effort to remain competitive, while others in their industry lowered their wage bills by moving their operations abroad.

Overall, convict labor is responsible for 5% of the total manufacturing-employment decline in the U.S. from 2000 to 2007.

If the Trump administration is serious about protecting the livelihoods of U.S. workers and the integrity of market competition, addressing the problems raised by prison labor is a good place to start.

Companies should be required to pay prisoners wages that are closer to the market rate. At the very least, companies (such as Boeing BA, +1.59%  ) should have to bid for the right to use convict labor. Even if all the proceeds didn’t go to the convicts themselves, the difference could be used to help defray prison costs.

Yet, far from reducing the distortions created by the convict-labor system, some governments are exacerbating them.

In Colorado, for example, state agencies must purchase certain goods, such as office furniture, from the state’s correctional industries, a requirement that puts firms without access to convict labor at a distinct disadvantage. A lack of transparency in the process of determining which firms may use convict labor does not help.

Historically, competition from convict labor did have one unintended benefit: while it wiped out some industries in certain locations, it also forced firms to adapt, including by adopting more advanced technologies. Those companies that survived did so by investing in labor-saving machinery and even patenting their own innovations.

But this outcome, too, had a steep downside: because it caused returns to capital to increase relative to returns to labor, it benefited capital owners at the expense of low-skilled wage earners.

Colorado recently voted to change the language in its state constitution, so that it no longer allows “slavery” as a form of punishment. And yet prisoners in the state are producing furniture for the University of Colorado for $2.45 per day. What are they, if not slaves?

This article was published with permission of Project Syndicate — America’s Captive Labor

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