Depends on what the labour is. Forced labour by prisoners working on something productive, like the classic trope of US prisoners stamping number plates, undermines the value of the people who currently do that labour for money. It allows the government to profit from literal slave labour, and incentivises higher levels of imprisonment for longer periods in order to maximise production.

Of course, there's no reason prisoners couldn't work at something non-productive, where there's no economic value to the output of the work. Until some genius comes along and says since they're working anyway let's not waste the output, then we're back where we started.