Letter from the Research Analyst: Recent Trends in Prison Labor Use (2/3)

Research Analyst Erika Folgar breaks down the latest trends in prison labor use identified in FreeCap Financial’s 2023 Criminal Justice Report.  This post is part of a three-part expert series on FreeCap’s data findings. To be notified about future posts, follow our LinkedIn, and to read the full report, click here.  

What Are the Realities of Prison Labor?

Today, most major companies have human rights policies which ban modern slavery and human trafficking. However, the 13th Amendment of the United States Constitution permits the use of slavery and involuntary servitude as a punishment for crime, effectively legalizing forced prison labor. Consequently, it is less common for businesses to explicitly prohibit the use of prison labor in their supply chain.

According to a report by the ACLU, incarcerated workers earn, on average, between 13 cents and 52 cents per hour nationwide. To make matters worse, these wages are further reduced, as the government takes up to 80 percent of these wages for “room and board,” court costs, restitution, and other fees like building and sustaining prisons.

While companies may see greater short-term profits by exploiting this cheap labor market, they incur outsized risk by utilizing prison labor in their supply chains. Companies have faced public backlash, boycotts, and enduring damage to their brand names and reputations due to their involvement with prison labor. Such involvement can expose companies to financial and operational vulnerabilities, such as supply chain disruptions, litigation, and reputational harm.

How We Measure It

FreeCap Financial uses two metrics to measure companies' stance on prison labor. Using companies’ policies such as their Supplier Code of Conduct, we identify their labor regulations and track whether they explicitly ban all forms of prison labor. Moreover, we assess the strength of these policies by analyzing the existence of supplier risk mitigation strategies to ensure the constant monitoring of their supply chain for potential human rights violations.

FreeCap’s Findings 

• A mere 20% of the S&P 100 have explicitly banned their suppliers from using prison labor.

• Only 17% of the S&P 100 have procedures in place to continually assess the social impact of their supply chain and manage possible risks of prison labor.

• We spotlight Costco as a leader in prison risk mitigation. They jumped from 96th to 19th in the FreeCap dataset from 2021 to 2022, as they have not only increased their transparency regarding their use of prison labor, but have also committed to fully terminating prison contracts by the end of 2022 after acknowledging the challenges in monitoring labor standards among these partners. Only 18 other companies in the S&P 100 have systems within their supply chain to flag for instances of prison labor, and even fewer publicly report these findings and how it was addressed. 

Why This Matters  

While some companies, like Costco, have demonstrated transparency regarding and a willingness to address prison labor usage, over 80% of the S&P 100 still do not have procedures to assess their supply chain’s social impact and manage possible prison labor risks. 

Investors should be concerned about the reputational risk this poses to companies, especially at a time of increased scrutiny.

What You Can Do 

To combat the effects of mass incarceration, it is crucial to direct money and resources towards change-makers and to call attention to those falling behind in reform efforts. FreeCap invites you to join us in the fight to divest from prison labor and invest in freedom.  

While we’ve highlighted some important insights on prison labor use in the post, our full Criminal Justice Report provides even greater, unprecedented transparency into the criminal justice footprints of the 100 largest companies in the US. Our data subscription offering and custom benchmarking report also help you identify the companies in your portfolio that are leading and lagging in criminal justice reform.  

Erika Folgar is a Research Analyst at FreeCap Financial who works closely with FreeCap’s scoring methodology and co-wrote and edited the 2021 and 2023 Criminal Justice Report. Before her role as a Research Analyst, she graduated from Vassar College in May of 2022 with B.A. in Economics and correlates in Mathematics and Latin American Latinx Studies. In 2021, she received the Thompson Bartlett Fellowship for Economics to study at the University of Texas at Austin.