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State-Sponsored Slavery and the Destruction of Small Businesses

We hear an awful lot from politicians, unions, and progressive organizations on the importance of earning a decent living wage. Yet, while small businesses struggle to stay afloat with the ever rising costs associated with minimum wage and workers benefits, UNICOR, also known as Federal Prison Industries (FPI), a government-owned corporation employing over 12,000 prison inmates for as little as 23 cents an hour, is destroying jobs and causing some small businesses to close operations altogether.

Firstly, it is important to point out that there is little empirical evidence to suggest any correlation between the FPI “jobs training program” and reduced recidivism rates. In fact, a 2012 study, Kerry Richmond, Associate Professor of Criminal Justice at Lycoming College, looked at the impact of FPI employment on the recidivism outcomes of female inmates. Her study found “no significant differences in rearrest or recommitment to federal prison between inmates employed in UNICOR and those who were not. Length of UNICOR employment is also not shown to have an effect on recidivism.”

Similarly, in 2002 the Enterprise Prison Institute conducted a field survey of inmate employers to see if work programs such as UNICOR have an impact on prisoner reentry. The survey found that FPI lacks specialized knowledge in how to run a commercial business and has a built-in incentive to employ as many prisoners as possible, but not necessarily in occupations in which they are likely to be able to get jobs in the future.

The few studies that have found any positive correlations between UNICOR and reduced recidivism have failed to make any definitive conclusions. A 2013 Congressional Research Service study reported that the authors could not rule out sampling error as a possible explanation for the positive effect. The researchers also reported that many of the studies included in the analysis lacked stringent methodological rigor, thereby preventing them from concluding that the programs lead directly to a decreased rate of re-offending.

More importantly, under federal law UNICOR gets first bid when it comes to government contracts, regardless of the price it offers. As a result, private sector businesses are undercut and prevented from even competing for a federal government contract. In recent years there have been several cases where small businesses have had to close down operations and lay off hundreds of employees because they simply can’t compete with UNICOR. In 2012, clothing manufacturer American Apparel was forced to close down an entire plant and lay off 175 workers after losing federal government contracts to UNICOR. A spokesperson for American Apparel said that “We pay employees $9 on average. … They get full medical insurance, 401(k) plans and paid vacation. Yet we’re competing against a federal program that doesn’t pay any of that.”

You would such an outrageous small business-destroying program would attract great concern and attempts at reform from both sides of the political aisle, but this truly despicable program has gone relatively unchallenged, until recently.

However, there is hope. Rep. Bill Huizenga has sponsored a bill to force Federal Prison Industries to compete on a level playing field with private businesses. If passed, this bill will eliminate the unfair mandatory sourcing provision and promote small business job growth by preventing UNICOR from bidding on small business contracts. Furthermore, the bill requires that a study on the effectiveness of UNICOR’s impact on recidivism be conducted to eliminate any false claims about the programs assumed effectiveness in achieving lower rates of re-arrest and long-term employment prospects.

Small businesses continue to be the lifeblood of the free enterprise economy of the United States, accounting for 66 percent of all new jobs created since the late 1970s. While economic conditions remain fragile, it seems egregious for UNICOR to continue to undercut small business and drive private sector employees out of work. Rep. Huizenga’s bill provides an opportunity to reestablish fair market competition, so small businesses can continue to provide a solid foundation for the U.S. economy.