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Inmates hired by private manufacturing business - Forbes

Michelle Conlin,09.21.98

NEW YORK - TROLLING THE BAHAMAS in his Hatteras yacht four years ago, Minneapolis moneyman Irwin Jacobs flipped on the TV and had an inspiration. On the screen flashed a news report about prisoners loafing around with nothing to do. Hey, why not put some of these jailbirds to work?

Two years later Jacobs Trading had hired 100 inmates from the Prairie Correctional Facility in Appleton, Minn. to remanufacture returned goods like Prego strollers and Regal crockware for resale. The plant sits inside the prison's razor ribbon walls and comes with a loading dock secured with motion-sensitive fencing.

One of Jacobs' recruits is Floyd Leonard, 51, a former drug addict and robber who now earns $5.15 an hour as an inventory clerk. "I'd rather spend 20 hours at my job than 10 hours inside that prison," he blurts.

Unions don't like the idea, but in a full-employment economy they aren't screaming as loudly in some states. Still, gainful employment among the striped-suit set is small: 2,539 of 1.8 million prisoners are working for private businesses, as authorized by a federal law. But that's up 31% in the last two years.

Inmates are working as reservation agents for TWA in California, assembling electronic equipment cables for Escod Industries in South Carolina and building circuit boards for U.S. Technologies in Texas.

Convicts in Nevada even restore antique motor cars for the Imperial Palace Hotel & Casino's museum in Vegas.

In the 19th century two-thirds of prisoners were contracted to private entrepreneurs to farm crops and produce household goods. Under this system, many prisons, such as Sing Sing and Newgate in New York, posted surpluses. Taxpayers didn't pay a penny. But complaints from social reformers and union leaders forced lawmakers to restrict private industry's ability to hire prisoners. By the end of World War II convicts were only allowed to produce goods -- such as license plates and furniture -- for government agencies.

The tide turned in 1979, when Congress passed legislation to again allow private businesses to employ state and local inmates -- as long as the companies don't eject nonprisoners from jobs and pay prevailing wages in the area, as determined by state authorities. Productivity behind bars is better than you might think, since employers are permitted to be picky about their hires. A prison factory at Evans Correctional Institution in South Carolina even received an award from IBM given to only 10 of 500 plants for churning out 25,000 cables with zero defects.

There's no lack of job applicants, since state and federal make-work programs pay as little as 20 cents an hour, while the private gigs pay at least minimum wage -- and sometimes more.

"On the outside, you'd have to interview 1,000 people to get 50 minimum wage workers, and in 30 days most of them would be gone," drawls Kenneth Smith, chief executive of U.S. Technologies, which has 100 inmates making circuit boards for Motorola, IBM and Dell. Smith says his company has already brought back about 60 jobs from Canada, Mexico and Haiti by promising to save his clients at least 10% of the costs they pay offshore.

The private employers usually don't have to pay for health care, pensions or vacation and sick leave. Often they are given free facilities and even capital equipment. Taxpayers get a break, too, since up to 80% of inmates' wages are used to pay room and board, victims' restitution, child support, alimony and court fees.

Kenneth Mellem, chief executive of St. Petersburg, Fla.-based Geonex, was all set to hire workers in India and Malaysia to digitize the maps of his utility company customers. But he was lured at the last minute by a Florida prison nonprofit executive who wanted him to give 200 inmates a try. Since his is a service business, Mellem's not required to dole out prevailing wages. Instead he pays a fixed rate based on the amount of work completed.

Usually ex-cons get $100, a bus ticket and a pat on the back once they are sprung. But many of the inmates working for private industry are offered jobs by the companies who employed them on the inside. Karen Smith left Iowa's Correctional Institute for Women with $1,800 and a job as a packer for her prison employer, Diamond Crystal Foods. "Without that job," Smith says, "I might have gone back to writing bad checks."

http://www.forbes.com/forbes/1998/0921/6206084a.html