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A nation with an economy dependent on cheap prison labor would be more inclined to imprison arrested citizens, reinforcing America's incarceration rate, which is already the highest in the world.
Although, in the last decade, many companies have saved up to 75% in labor costs by outsourcing to nations like China, prisoners in the US have legally been paid as little as $0.16/day. This results in $41.60 per laborer per year in expenses.
Studies have shown that filling an inmate's day with work keeps their mind occupied, lowering instances of adverse activity and violence. Teaching them skills they can apply after release also lowers the rate of recidivism, contributing to rehabilitation for society.
As of 2010, working couples paid an average of $500 in taxes that were used for corrections, cumulatively, for federal, state and local institutions. If the prison system was a closed ecosystem, that tax burden could be carried by the incarcerated themselves, loosening taxes on struggling families.
It might incentivize companies from outsourcing labor jobs, but without the benefit that is the whole point of doing that, because the jobs would go to inmates and not the outside population.
This doesn't actually address the premise, but there is a word for forced labor...
It would also incentivise incarceration of people for relatively minor offences.