I think the means are ethical, as well as the ends.
At the end of the day, I dont think each of the things you said are true. I dont think there is wage competition, I dont think the state is setting sentences based on labor demands, and I dont think there is an impact to locations of habitation.
As stated elsewhere, I think penal labor is just and moral in concept.
However, I do agree that the moral hazards are too great around combining it with for-profit prisons and corporations.
I think the one area where I would find private employment acceptable is work release programs at market rate, provided the pay goes to the prisoners instead of the state. I think these programs should be expanded, and could help with child support, victim restitution, and stability upon release.
At the end of the day, I dont think each of the things you said are true. I dont think there is wage competition, I dont think the state is setting sentences based on labor demands, and I dont think there is an impact to locations of habitation.