The issue becomes that these prisons are exerting downward market force across the industry by using this labor source. They're creating an additional supply of workers which decreases demand and therefor wages. I'm fine with "The Free Market" doing its thing, but not through slavery/unfair practices.

To the point you're making of all the other things the prisons provide for the convicts and how that would amount to pay equivalent for free laborers: that's their job. They provide a public good service, feeding/clothing/housing in a humane way people who have violated laws. In exchange they are given money from the government. Their primary business should be that and not disrupting labor.