Yes, life is horrifying for people on minimum wage. Why not make life better for people out of prison rather than exploit people in prison and then hold them up by comparison to the free but brutally impoverished ones and say "look how great you have it, you're not doing slave labor!"
Supposedly rehabilitation is a goal of prison; how nice would it be if prisoners walked out with a small nest egg, to help them get settled and survive while they go through the impossibly difficult task of finding a job with a criminal record? Right now, it's very tempting to go straight back into crime or drugs since these are the only career opportunities available. Maybe saving at minimum wage for 5 years would give them enough money to for the first time in their life feel safe, or enough capital to invest in something that could make their lives better, like tools, a business, etc. Maybe they could get some fulfillment and feel like they are part of a social unit by sending money back to their family while in prison. Maybe if they are paid the market value of their labor they will develop confidence that their labor is worth something and a viable alternative to, say, crime.
And yes prison is expensive for the state, but that's the state's problem and provides no justification for exploitation. The state can't do something unspeakable to you like lock you in a cage to be beaten and raped for decades and then make you pay for it. If prison is too expensive, the state should imprison fewer people. There are far more economically efficient alternatives to locking up millions and throwing away the key (like improving conditions for the poor!); the state is making a stupid, cruel, and horrible choice and it should pay the full price for it or it has no incentive to make a better one.