Economic Consequences of the U.S. Convict Labor System

By Michael Poyker, Postdoctoral Researcher, Columbia University Graduate School of Business. Originally published at the Institute for New Economic Thinking website

hile labor coercion in agricultural and preindustrial economies is well-studied, few papers address the effects of coercive institutions in an industrial setting (Naidu and Yuchtman, 2013). The most common form of labor coercion in modern times is convict labor: it is still widespread, not only in developing countries but also among the world’s most developed countries. This practice is potentially important to the economy because a large share of labor, working at significantly below the minimum wage, could impose externalities on the broader non-coerced segment of the labor market.

In 2005, the U.S. convict-labor system employed nearly 1.4 million prisoners, of which 0.6 million worked in manufacturing (constituting 4.2% of total U.S. manufacturing employment).[1]Prisoners work for such companies as Wal-Mart, AT&T, Victoria’s Secret, and Whole Foods, and their wages are substantially below the minimum wage, ranging from $0.20 to $5.15 per hour in state prisons.[2]

In recent research (Poyker, 2018) I provide empirical evidence on how convict labor affects local labor markets. Using a new dataset of U.S. prisons from 1886 to 1940, I calculate each county’s exposure to competition with prison-made goods. I find that the 1870–1886 introduction of convict labor accounts for a 0.5 percentage-point slower annual growth rate in manufacturing wages from 1880 to 1900. At the same time, affected industries had to innovate away from the competition and thus had higher patenting rates and adopted new labor-saving technologies.

The economics of convict labor are straightforward. Prisoners employed in manufacturing production cannot be employed by any firm on the competitive market. Prison-made goods are relatively cheap because the cost of convict labor is lower than the reservation/minimum wages of free laborers. Thus convict labor decreases labor demand in a similar way to import competition shocks. While an active literature in economics has investigated local demand shocks due to import competition (among others Autor et al. (2016)), no economics paper has yet addressed such shocks due to convict labor.

Previous work has not been able to study this issue due to lack of data and due to a lack of exogenous variation in convict labor. U.S. prisons tend to be built in economically depressed counties under the assumption that they will provide jobs (e.g., guards and nurses) in the local labor market (Chirakijja, 2018) so cross-sectional estimates comparing prison towns to others would have selection bias. Similarly, trends in recent convict-labor legislation may be correlated with trends in states’ budgetary health, which is directly related to local labor market conditions.

I address both the lack of data and lack of exogenous variation. The empirical context is U.S. counties for the years 1886 through 1940. These data come from a newly digitized archive of the Bureau of Labor’s reports on convict labor used in all U.S. prisons and labor camps. Adapting an approach from recent works on import competition (Autor et al. (2013) and Kovak (2013)), I construct county-level exposure to convict labor as the weighted average of industry-specific values of convict-made goods in all U.S. prisons, where the weights include the county’s industry-labor share and the costs of trade between those prisons and the county. In the baseline analysis, I estimate the effect of convict-labor exposure on manufacturing wages and employment using first-difference ordinary-least-squares regressions. To address the concern that the location of prisons and the choice of industries by prisons might be endogenous, I employ an instrumental-variable estimation. Exogenous variation in the use of convict labor comes from the fact that prisons built before the 1870s (when state laws introduced convict labor) did not have the facilities and infrastructure for factory production. The introduction of convict labor was unanticipated, both by firms and by prison wardens, who were suddenly in charge of employing prisoners within their institutions. Pre-existing prison capacities are correlated with the value of goods produced in prisons after convict-labor laws were enacted. Therefore, my instrument for exposure to convict labor is the exposure to pre-existing prison capacities; i.e., I compare counties that were located closer to prisons built before convict-labor legislation to the ones located farther away from the pre-convict-labor-era prisons.

I find that the 1870–1886 introduction of convict labor decreases manufacturing wages and employment. Comparing two counties, one at the 25th percentile and the other at the 75th percentile of exposure to convict labor, the more exposed county would on average experience a 0.4-percentage-point slower growth rate in manufacturing wages, a 0.3-percentage-point slower growth rate in manufacturing employment share, and a 0.12-percentage-point slower growth rate in labor-force participation annually.

By comparing counties with prisons (Figure 1) to counties adjacent to them and to second-order adjacent counties, I find that the effects of convict labor are stronger in counties with prisons and that the effects decay with distance. My results are not driven entirely by the extensive margin: I find that the results hold within the sample of counties with prisons.

[1]Sources: Census of State and Federal Adult Correctional Facilities, 2005, and FRED.


Figure 1: Convict labor and manufacturing wages: Event studyNote: Each square is the coefficient of the event-study regression of the log wages in manufacturing on the time-invariant log value of convict-labor output in 1886 in a county, interacted with decade dummies. Relative time (in decades) is plotted on the horizontal axis, such as 1880 is counted as 1 — the first decade when convict labor was imposed. Wage data for 1910 is not available. I use state and decade fixed effects, and log manufacturing output in a county as controls. The dark blue line corresponds to a regression where I treat counties that had convict labor in it as treated. The dashed green line treats counties that are adjacent to counties that had prisons. The dashed gray line assumes that counties that are adjacent to counties that are adjacent to prisons as treated. My results hold if I double-count counties that are adjacent to more than one county with a prison. 95% confidence intervals are depicted.

While prison labor was used in many industries, most prisons produced clothes and shoes. The apparel and shoemaking industries employed mostly women, who were more affected than men by coerced labor. I find that women’s wages decreased 3.8 times more than those of men.

I find that convict-labor shocks facilitated technology adoption. Comparing two counties, one at the 25th percentile and the other at the 75th percentile of exposure to convict labor, the more exposed county would be expected to experience double the mean annual number of registered patents (8.4) in industries where prisoners were employed (with no effect on patents in industries where prisoners were not employed), and a 0.18-standard-deviation increase in the capital-labor ratio.

The latter result is partially driven by adoption of new technologies (decreasing the costs, increasing the quality of goods, or substituting labor with capital) and these technological changes were capital-biased. I provide three pieces of evidence on potential mechanisms. First, using firm-level survey data from the Weeks Report, I show that firms in affected industries and localities were more likely to adopt improved labor-saving machinery, as competition in (low-skilled) labor became futile. Second, using county-industry-level data from Hornbeck and Rotemberg (2018), I show that firms in affected industries and locations invested in technologies associated with increased productivity of capital relative to technologies related to the productivity of labor. Moreover, the set of available technologies — in the words of Caselli and Coleman (2006), the “technological frontier” — of affected firms improved (Figure 2). Third, I demonstrate that the returns-to-capital relative to returns-to-labor ratio increased by 0.5 percentage points annually in affected counties (interquartile range). However, the increase in the capital-labor ratio is also driven by changes in industrial composition. Using firm-level data from Atack and Bateman (1999), I show that it is also partially explained by the exit of labor-intensive firms in the affected industries.

Figure 2: Technological frontier in leather industry: Affected vs. unaffected firms

The number of convicts has soared from approximately 160,000 in 1932 to more than 2.3 million today, and the effect of contemporary convict labor on the U.S. economy is likely large. No detailed data are released on the amount and industrial composition of convict labor, but according to the U.S. Census of State and Federal Adult Correctional Facilities, approximately 1.4 million prisoners were employed in 2,500 U.S. prisons in 2005. From 2000 to 2005, the number of prisoners employed in manufacturing almost doubled, from approximately 308,000 to approximately 594,000.[1]Today, those prisoners still receive lower-than-minimum wage and impose externalities on free labor.

Thus, this 92% increase in the number of employed prisoners led to a 0.07-percentage-point decrease in manufacturing employment in 2000s, and a 0.02-percentage-point decrease in 1990s. Even if my estimate is an upper bound of the effect and the actual effect is smaller, the contemporary policy of placing prisons in economically depressed regions may be fallacious. While the 1870–1886 convict-labor shock was similar in magnitude to the China shock (Autor et al., 2013) in 2000 and 2007, the effect of contemporaneous convict labor is relatively small, constituting 6.4% of its effect in the 2000s. Hence, exposure to prison labor competition explains 5% of the manufacturing employment decline 2000 and 2007, compared 55% explained by the China shock.

Decreased costs of international trade and trade liberalization have made import competition a more important determinant of the decline in manufacturing employment; however, prison labor still affects labor markets. Moreover, the United States has accused China of using convict labor to produce export goods (Hairong and Sautman, 2012), while its own convict labor takes jobs from U.S. free laborers. My analysis highlights the fact that many aspects of economic life and many groups of people can be affected directly and indirectly by competition from prison-made goods. Thus, when we evaluate the overall effect of the penitentiary system, we should carefully assess the negative externalities created by convict labor.

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  1. Bob


    This study while interesting misses some important items –
    In addition parolees are often on “work release” under very strict rules, Rules so strict that the work release is de facto involuntary servitude.
    So for example – 5 minutes late to work because your ride has car trouble – back to prison for violation of parole. Miss a day’s work due to family issues ? Back to prison.
    And there is the ever popular restriction of limiting the parolee’s work release to a locale. if the parolee is limited to a certain rural locale they can be forced into a cycle of very low wages which drives the parolee into never ending poverty and actually encourages the parolee to return to a life of crime.

  2. greg

    Convict labor would seem to be an extreme case of economic compulsion. However, lesser degrees of economic compulsion, as for instance brought about by an excess supply of labor in the face of limited demand for labor, would seem to have similar economic consequences. Thus, compelling labor to work for inferior wages, would also seem to act to further bring down wages, in a self-reinforcing effect. And not only will wages be depressed, but employment will be depressed as well.

    If we consider the concrete case of a closed economy, reducing wages will reduce demand for the products of labor, which will further reduce wages and employment, and so forth in a vicious spiral. (The product actually. One or the other could still increase if the product decreased. And demand could be temporarily sustained by borrowing or one or another form of decapitalization.)

    This effect will, in fact, be amplified in economies operating under a trade deficit, and mitigated in economies operating at a trade surplus.

  3. Disturbed Voter

    The government should never profit from incarceration. It gives the government the wrong incentives. Whether they privatize the prisons or not. We need to minimize the number of people incarcerated.

  4. Frank Little

    In Wisconsin, people in prison make the furniture for most state government offices and universities through an entity called Badger State Industries, for which they are paid around $1.50/hr and perform many jobs within the prisons themselves for less than half of that wage. Badger State jobs are prized and so are quite difficult to get, which is kind of interesting given the external effects investigated in this post. It’s also worth mentioning that they are legally barred from any kind of labor organizing and can be punished for even having literature related to those efforts.

    At the same time, due to staff shortages guards can work so much overtime that one made $175,000 last year (more than the governor and the secretary of corrections) by working 95 hours a week. This kind of overwork is often the precursor to violence between guards and inmates, though when that happens these kind of long-simmering problems are rarely discussed in the news coverage.

  5. diptherio

    omparing two counties, one at the 25th percentile and the other at the 75th percentile of exposure to convict labor, the more exposed county would be expected to experience double the mean annual number of registered patents (8.4) in industries where prisoners were employed

    So prison labor equals innovation! I don’t see why anybody has a problem with this. In fact, based on these findings, we should be locking up more people and making them work for peanuts. Think of all the nifty inventions it will lead to! I bet the only thing stopping industry from inventing our way out of the climate crisis is not enough prison labor. Gawd bless ‘Merica!

    1. anon y'mouse

      i noted with interest that detail as well. return to capital improves, while return to labor is pressed lower. and we all know that return to capital funds more of same, in a chain. and who owns capital?

      capitalists “innovate” while labor is chastened. it’s a win-win!

  6. Off The Street

    Counties may have an interest in work-release programs to allow reintegration of their semi-transient population. The cleverer bureaucrats should be able to find grants or other cost-sharing, even Bezzle, opportunities. Since those County programs have helped non-incarcerated hospitality and food service employees, why not extend the concept inside for furniture or other non-license plate stamping work?

    Manafort Manufacturing, the new subsidiary at Club Fed, at least until the new manumission.

  7. David in Santa Cruz

    I worked in criminal justice for 34 years, and I don’t find this study to be particularly compelling. Most convict labor today is administered at the state level rather than the county. As the author concedes, prisons tend to be built in already economically depressed counties.

    At the county level I’m far more concerned about the “Ferguson Problem,” through which behaviors related to poverty have been criminalized as a source of revenue for local governments and of employment for local elites and their cronies.

    Anecdotally, I worked in Silicon Valley with the new “progressive DA” (whatever that is…) to decriminalize driving while a person’s license was suspended for non-payment of fines. Instead, we collaborated with the working poor to come up with payment plans for fines in arrears — by promising to suspend current fines, without any threat of incarceration. Within six to twelve months most of these folks had back their licenses and had obtained basic liability insurance. However, the Court went into default on its spanking new Italian marble-faced courthouse, that had been built on the expectation of extracting a steady stream of fines from the working poor…

    1. Joe Well

      @David, in 2019 most goods and services are consumed nationwide. I think the implication of this study is that coerced labor will depress wages nationwide, even in states that don’t have it.

      1. David in Santa Cruz

        Not quibbling with the concept that prison labor depresses wages nationwide — just with the accuracy of the methodology. While convict labor was traditionally subject to rules barring competition with the private sector, and made furniture for state offices or stamped license plates, the practice of providing labor to the private sector is absolutely pernicious!

        However, I think that the criminalization of poverty is the more significant problem today.

    2. juliania

      Your anecdote is very much on point, David in Santa Cruz. Here in New Mexico I can personally verify that the situation you describe is very much in play. Incarceration due to non-payment of fines is followed by the inability of the now jobless person (you have to have a car to keep a job in this rural state) to even keep a date to appear at the municipal court; and there is also a yo-yo affect when you manage to do so, where the public defender is telling the victim ‘You must get your license reinstated’. So she/he attempts to do that, waits in the crowded waiting room to be seen, and the Department of Motor Vehicles clerk tells him/her ‘You need a certificate of compliance from the court.’

      So, you struggle to survive till your next court date, don’t make it back to the court because somebody stole your documents as you slept in a crowded street person place – under a bridge, in a cemetery (the headstones keep the warmth of the sun), or if you are lucky in homeless shelter. Since they took your watch as well (you lost your portable phone long ago) you don’t make it on time and the court issues a bench warrant for your arrest – even if you no longer have a car because you couldn’t keep up the payments not having a job. In you go. The situation is compounded by the difficulty in even getting just a current ID to prove you are who you say you are – I personally experienced that as a retired person.

      For the working poor,( now non-working and unemployable, getting quite a bit crazy to boot) it is a nightmare.

  8. juliania

    I thank Yves for providing a link to the summary of the updated paper the author has produced. At that link, here is the summary as updated:
    Research Research Papers
    Economic Consequences of the U.S. Convict Labor System

    Prisoners employed in manufacturing constitute 4.2% of total U.S. manufacturing employment in 2005; they produce cheap goods, creating labor demand shock.

    I study the economic externalities of convict labor on local labor markets and firms. Using newly collected panel data on U.S. prisons and convict-labor camps from 1886 to 1940, I calculate each county’s exposure to prisons. I exploit quasi-random variation in county’s exposure to capacities of pre-convict-labor prisons as an instrument. I find that competition from cheap prison-made goods led to higher unemployment, lower labor-force participation, and reduced wages (particularly for women) in counties that housed competing manufacturing industries. The introduction of convict labor accounts for 0.5 percentage-point slower annual growth in manufacturing wages during 1880– 1900. At the same time, affected industries had to innovate away from the competition and thus had higher patenting rates. I also document that technological changes in affected industries were capital-biased.

    From what I can see, though the data was recently collected, the paper is based on statistics collected in 2005. Moreover, the base to those statistics ranges from 1886 to 1940. Unless I am missing something, there is no current data in the study. The situation will have become markedly worse since the information was documented.

    This is a horror story now.

  9. anon y'mouse

    there shall be no wages lower than the minimum wage (an actually livable wage, not the one we experience in this reality). to do so anywhere, for any case or group (so, disabled workers, prison slavery, “tippable” jobs) is to break the law and be turfed into prison the same as if an employee stole from the boss. because suppression of the cost of labor steals from all laborers, in fact and in theory. (same reason to imprison the ___stains that hire illegally, aside from their desire to exploit essentially a sub class similar to slaves on the run from the government in our society)

    *me writing Red Queen laws in my head

  10. Cal2

    “Most of those prisoners now work as groundskeepers, janitors and in prison kitchens, with wages that range from 8 cents to 37 cents per hour. Lawyers for Attorney General Kamala Harris had argued in court that if forced to release these inmates early, prisons would lose an important labor pool.”

    Kamala, the corrupt corporate cop who failed the people who elected her.


    1. JBird4049

      Our State Attorney General arguing in favor of California’s Arbeitslagers (forced labor camps)? How unsurprising.

      On this convict labor system article, I find it saying water is wet. This is not something unknown. Slavery does exist because it is cheaper than paid labor

      The South did essentially reintroduced slaver under a different name immediately after Reconstruction’s collapse with overthrow, very often armed, violent, and lethal of all the Southern States’ governments by White supremacists, Antebellum ruling elites, and former Confederates.

      The convict labor system combined with sharecropping essentially was a new and improved system of forced labor because it had the added benefits of cheap, almost free and disposable slaves, as well as the addition of the poorest whites especially under sharecropping.

      Whereas before the Civil War, slaves had been immensely valuable as property like a house or a car, prisoners could not be sold or used as collateral. People tend to maintain their slaves like a house and car; prisoners were firewood from the forest to be used up and then replaced. Although prisoners sometimes did gain their freedom.

      Just as towns like Ferguson adjusted the fines to pay for the new jail, law enforcement would be tasked with rounding up labor either for new projects or for replacement labor. Of course elements of the system spread nationally and have never completely gone away anywhere.

      A good primer would be the book Slavery by Another Name by Douglas Blackmon.

      1. Cal2

        Don’t forget this quote by “black liberator L.B.J.”

        “Negroes, they’re getting pretty uppity these days and that’s a problem for us since they’ve got something now they never had before, the political pull to back up their uppityness. Now we’ve got to do something about this.”

      2. The Rev Kev

        I’m glad that somebody pointed out how people were kept in jail illegally by Kamala just so the prison workforce would not have a shortfall. In reading the 13th Amendment (it would be number 13, wouldn’t it?) you have to admire it. And I quote: “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”. Did you see what they did there? They outlawed private slavery while opening up institutional slavery.
        In reading JBird4049’s comment I suddenly realized something. Classic pre-1865 slavery was mostly personal with the plantation owners being heavily invested in them. I heard that in terms of price they would be on par with the price of a car with expensive after-cost to be paid for. They had to be fed and have shelter with some medical treatments. They had to be closely supervised and there was a whole private/public regulatory system in place to deal with them. But look at what has happened now. All the costs of purchasing and sustaining a slave have all been outsourced to the State. Think about it.
        It is the State that ‘acquires’ these men and women through the State paid police and court system. They go to a prison where the State homes them, feeds them, gives them medical treatment and watches them closely. So now industry can lease them for a pittance as slaves. If they say that they do not want to be in the work force, they are punished or locked up in solitary confinement to make them participate. It is not the lash but it is still punishment. They have no rights and organizing is a punishable offense. So, through the 13th Amendment, slavery has been taken out of the public sphere and re-set up in the State sphere where the private sphere can hire them out. Neat trick that.

        1. jrkrideau

          I had thought that the USA had outlawed slavery after the Union/Confederate dust-up. It is a bit shocking to see that it has not.

          Come to think of it, the 13th seems like creeping socialism. Only the state can own slaves!

          1. JBird4049

            Come to think of it, the 13th seems like creeping socialism. Only the state can own slaves!

            Perhaps. The convict leasing system is like the 19th century’s version of “public-private partnerships” as the government acquires the labor through their ostensibly fair trial and conviction for supposedly breaking a law, and then leases them out for a fee much like leasing a car; the government is supposedly not modifying the arrest and conviction numbers to match demand for the politically connected businesses in farming, construction, mining, logging, and even manufacturing. They did though, just as currently many governments modify the ticket fines and police quotas to match revenues to the budget.

            In a few of the more isolated backward areas trials, even by a judge, were not really done. It was more like the British system of impressment; legal kidnapping off the street of men for labor except sailors had some meager rights, received wages, and eventually freedom once a war ended.

            The leased truly were the slaves of the companies leasing in everything but the name. All the government cared for was the payment for the use of the labor.

  11. mrsyk

    How about making convict labor available only small non franchise businesses? This could be part of a means to revitalize downtowns and reintegrate the rehabilitated into communities.

  12. William Hunter Duncan

    May I be the first one to condemn outright the idea that it is ok to put people in cages and then make them work to make money for you? Is America so corrupt that not even here at the commentary crowd can’t stand up and call this criminal motive?

    I guess when an architect of that criminal motive Joe Biden can talk about running for President and isn’t condemned outright left and right, it is a sign the country is so far gone as to be beyond redemption.

    1. mrsyk

      I agree if the inmates are paid slave wages. Imagine a scenario where they are being paid a partially subsidized living wage. Could this not lead to a positive outcome for the inmates involved?

      1. JBird4049

        Best to have a living minimum wage be paid without any deductions except for normal taxes. Too easy to subvert otherwise.

    2. JBird4049

      As angry and disappointed as I am, there are plenty of leftists, liberals, libertarians, and old fashioned conservatives who have and are shouting about the for-profit carceral state that has been in existence for the past 150 years. The people benefiting from it have used everything from Edward Bernays’ style proganda to false arrest and framing to murder be it by the police or “mob” lynchings. All variety of race, class, religion and political ideology can be found among the reformers.

      Honestly, the reformers have very, very, very slowly succeeded, but it is always two steps forward, one step back. Abolitionists efforts followed by the Civil War and then Reconstruction followed by the Antebellum Elites resurgence, Jim Crow, and increasing lynchings into the Black Nadir of the 1920s. The legal struggles, which were helped eventually by the New Deal and the Second World War. Followed by another smaller backlash in the 1950s which was helped by the Red Scare. Then the Civil Rights Movement of the 1960s followed by President Richard Nixon’s twin Southern Strategy and the War on Drugs.

      Since about 1973, with the growing influence of Neoliberalism, the destruction of the American Left, the abandonment by both the Democratic and Republican Parties of their traditional constituencies as well as the subversive of any group that could push back using identity politics and money it’s been a steady decline. Although I do not have to worry nearly as much anymore about gay and lesbian friends and acquaintances being beaten or killed. So there’s that. And now Bernie Sanders, the DSA, and other reformers.

      Since the European colonies started to do their ethnic cleansing, the Dutch started to import Black slaves, and the American Colonies started to import the British white trash, there have been reformers pushing back on all of that. The Indians were almost extirpated, slavery has been the Original Sin that has poisoned the nation, and much of what was called Waste People has their descendants called Deplorables; the Natives are still here, slavery has been pushed back, and even the Deplorables might get the last laugh. Two steps forward and one step back for over four hundred years.

      1. William Hunter Duncan

        Methinks it was one step forward three steps back, with the rise of neoliberals Reagan/Clinton/Biden et al. When all three and their dogma are held widely in disrepute will we maybe get back to taking care with people and the earth.

        1. JB4049

          I can really see why one would see that. What we are discussing is occurring over centuries and seeing what is happening while in it is almost impossible.

          Just look at the time between the endings of both Reconstruction and the Great Depression. Just over sixty years of the Black experience in America getting worse, more violently oppressed, disenfranchised, re-enslaved, impoverished, and driven out of much of the entire country.

          Squeezed into back into the South or into a few Black ghettoes in the East and the North until the sheer desperation caused the Great Migration; even that was possible because they were used to bust unions and undercut the increasingly well paid White factory workers.

          Someone in 1935 just before things started to improve, having lived during those past six decades would have probably not have believed that the Civil Rights Movement’s successes were possible. President Obama? Please. Even the fairly wealthy Black Misleadership Class is progress in a twisted way. They do have wealth.

  13. Mickey Hickey

    In this age where management models itself according to Harvard MBAs’ and their ilk. It is of the utmost importance that incarcerating people should under no circumstances be profitable. The US incarceration rate is extremely high by OECD standards. Prisoners should never be paid less than the minimum wage with some of it going to dependents immediately and the rest into a fund to be paid out to the prisoner on release. It is important that prisoners have enough to support themselves for at least three months while trying to get employment.

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