USA TODAY, July 7, 2004

USA TODAY, July 7, 2004
Copyright 2004 Gannett Company, Inc.
USA TODAYJuly 7, 2004, Wednesday, FINAL EDITION
SECTION: MONEY; Pg. 1B
HEADLINE: Inmates vs. outsourcing
BYLINE: Jon Swartz
DATELINE: ONTARIO, Ore.

BODY:
ONTARIO, Ore. -- David Day has a bounce in his step and a glint in his eye unexpected in someone who makes nearly 400 telemarketing calls a day for less than $200 a month. That's because he has a coveted job where few exist: behind bars.

Day, 43, is one of 85 inmates who arrange business meetings from a call center at the Snake River Correctional Institution, a state penitentiary in this onion- and potato-producing town not far from the Idaho line. "I'm grateful for the opportunity. Many of us end up here because we didn't have jobs and lacked communications skills," he says on a recent morning, ponytail cascading down his state-issued denims.

If not for consulting firm Perry Johnson's aversion to moving jobs offshore, Day, who was convicted of assault, and his cellmates wouldn't be working.

About a dozen states -- Oregon, Arizona, California and Iowa, among others -- have call centers in state and federal prisons, underscoring a push to employ inmates in telemarketing jobs that might otherwise go to low-wage countries such as India and the Philippines. Arizona prisoners make business calls, as do inmates in Oklahoma. A call center for the DMV is run out of an all-female prison in Oregon. Other companies are keeping manufacturing jobs in the USA. More than 150 inmates in a Virginia federal prison build car parts for Delco Remy International. Previously, some of those jobs were overseas.

At least 2,000 inmates nationwide work in call centers, and that number is rising as companies seek cheap labor without incurring the wrath of politicians and unions. At the same time, prison populations are ballooning, offering U.S. companies another way to slash costs.

"Prisons are prime candidates for low-skill jobs," says Sasha Costanza-Chock, a University of Pennsylvania graduate who last year completed a thesis on call centers at U.S. prisons.

Market conditions seem to favor prisons. After declining for years, call-center jobs in the USA increased several hundred, to about 360,000, last year. At the same time, more white-collar jobs are going offshore than researchers originally thought. About 830,000 U.S. service-sector jobs, from telemarketers to software engineers, will move abroad by the end of 2005, up 41% from previous predictions, says Forrester Research.

About 3.5% of the 2.1 million prisoners in the USA produced goods and services worth an estimated $1.5 billion in 2002.

But the convicted workforce elicits as much dread as interest. Companies flinch at the prospect of a public-relations backlash should news leak out that they employ hardened criminals. Union representatives, meanwhile, call the hiring of prisoners a flagrant violation of minimum-wage laws and unfair competition to free workers.

"Quite literally, they're taking advantage of a captive audience," says Tony Daley, research economist for the Communications Workers of America, which represents 700,000 people nationwide.

A short commute

Tucked away in a corner of Oregon's largest prison, the call center looks like any other, except for the nearby guard stations, razor-wire fences and prison yard.

No more than a football-field-length away, employees commute from their "homes," or cells. The 40-hour workweek is Monday through Friday. A typical workday starts at 7:30 a.m. and ends at 4 p.m. Stellar work earns a half-day on Friday. The pay isn't great -- $120 to $185 a month -- but for 80 Snake River inmates, it's their first job and a diversion from life in this medium-security prison of 2,900.

"It's a real job: I've learned how to use a computer, make sales pitches and relate to people in the business world," says Willie Wade, 30, who is serving time for robbery. Convicts work for two companies in the Oregon facility. Day and about 60 others pitch Perry Johnson consulting services to American businesses. A group of 20 inmates, including Wade, work for Timlin Industries, an Oregon company that sells promotional items to small businesses.

The center opened last year after a yearlong push by the Oregon Department of Corrections to recruit businesses that would otherwise move offshore. The program reduces by 24% recidivism, the frequency in which released prisoners violate the law and wind up back in jail, and teaches prisoners to work together.

"Guys are sharing business tips rather than talking about their next fix or who to knock off next," says Rob Killgore, administrator of Oregon Corrections Enterprises, a semi-independent state agency that recruits for-profit business to prisons.

"When done properly, it is a vital and important service," says Kara Gotsch, public policy coordinator of the ACLU's National Prison Project. The temptation of call centers behind bars:

* Keeping jobs in the USA. Although inexpensive facilities and English-speaking workers beckon abroad, U.S. companies are unnerved by political backlash.

Consider consulting firm Perry Johnson. It considered moving jobs to India but instead opted for Snake River. "They wanted to keep jobs in the U.S., not take them away," says Ronna Newton, manager at International Marketing Resources, which set up the call center and has fielded calls from other interested companies.

"We're trying to save jobs from going overseas but without hurting the unions," says Philip Glover, president of the National Council of Prison Locals.

But Gordon Lafer, a University of Oregon political science professor, says companies view inmates as an opportunity to skirt the offshore controversy and still save money. "That's as disingenuous as farming jobs overseas," he says.

Besides prisons, companies are relocating call centers and other back-office operations to small towns such as St. Marys, Ga., and Nacogdoches, Texas, where real estate and labor are cheap.

* The costs of call centers. It's hard to retain call-center workers because the job can be demanding, labor experts say. Tethered to a phone up to 10 hours a day, answering hundreds of calls, workers are subjected to peeved callers and dreary work conditions. That has led to dizzying turnover rates of 33% -- nearly 10 times the average for other jobs, says Mercer Human Resource Consulting. High turnover has become such a thorny issue for the 7 million-worker industry that Comcast and Comerica have spruced up work spaces and offer specialized training to keep workers, Mercer says.

And it is costly to replace workers. Most companies spend $6,000 to $7,000 to recruit and train each worker, says Jon Anton, a professor at Purdue University's Department of Consumer Sciences.

An official for an Oklahoma-based sales company said if not for its 24-person call center at a state prison, it would have shut down operations or moved jobs to China because of costs. Inmates earn 11 cents to 36 cents an hour, says the Federal Bureau of Prisons.

So far, only six of the 85 inmates in Oregon have quit since the center opened in October, says Mike Reagan, who oversees call-center operations at Snake River. Inmates must have at least a year remaining on their sentences to qualify.

* Qualified workers. There are more inmates -- 2.1 million in mid-2003, compared with 1.6 million in 1995 -- because of an influx of convictions for non-violent crimes and longer sentences, says the Justice Policy Institute. As prison populations swell, so has the number of potential qualified workers.

"There isn't as much of a stigma to using prison labor," says Rosemary Batt, a professor at the Cornell University School of Industrial and Labor Relations. "We're sending jobs overseas when there are plenty of qualified people in prison. Why not pay people a wage to rehabilitate them?"

Timlin Industries approached the prison when it became too difficult to find workers in tiny Lakeview, Ore. "Boy, do these guys work hard," says Tim Klosse, who owns Timlin. His crew has performed so well, Timlin recently opened a manufacturing facility in Lakeview to handle an influx of orders.

Grunt work

Prisons and call centers are nothing new. Best Western phone reservations were logged by female inmates in Arizona in the 1980s and early 1990s before they were replaced by technology. TWA discontinued a phone-reservations program that employed inmates in California in the late 1990s, before the airline went out of business. All got flak for using prison labor. That's not lost on companies considering using inmates instead of exporting jobs. "There is a calculated risk," Killgore admits.

They fear a repeat of the public-relations fiasco that ensnared Dell last year, when it was disclosed that Dell employed prisoners for computer-recycling jobs since late 2002. Dell canceled its contract with Unicor, a branch of the Federal Bureau of Prisons, after an environmental group in California criticized Unicor for improper disposal of toxic waste and unsafe conditions. Dell spokesman Bryant Hilton said moving the jobs to California, Texas and Tennessee was a business decision.

Or worse, executives shudder at the prospects of inmates sharing the personal information of customers with fellow prisoners, as some did in Utah in 2000. That program was scrapped.

Yet advances in technology and common sense have resolved those concerns today, Killgore and others say. At Snake River prison, phone numbers are generated by computer and calls are recorded. Inmates talk to businesses, not consumers. And prisoners convicted of identification theft aren't eligible for jobs.

Ironically, market conditions overseas could return to the U.S. call-center jobs that drifted offshore, says Naren Patni, CEO of Patni Computer Systems, India's sixth-largest software company and a pioneer in outsourcing.

"Costs and turnover for low-skill jobs will increase in India," Patni says. "Who wants to be stuck in a telemarketing job, working odd hours to fit the U.S. time zones, if higher-paying jobs in product development come over? That may force U.S. companies to move call centers, maybe to jails."

Katey Grabenhorst, 42, is eternally grateful one particular call-center job was available at an Oregon prison. She started working for the DMV while imprisoned and remains an employee out of jail.

The job "brought self-esteem, order, skills and a stable income to my life," says Grabenhorst, who served nearly five years for attempted murder. "If this program wasn't available, I would have probably ended up back in prison."

"People can debate the value of prison labor, but I'm living proof it works," she says.