I think that complaint isn’t really separate from the rest, it infects the whole program. When the program is basically selling off their labour to private businesses who are doing that so they don’t have to pay fair wages to workers, the whole thing is completely tainted.
And if prisoners are volunteering because the living conditions are better, then they are being “paid” for their work anyway. It’s just they are being paid in kind instead of in cash.
Maybe you are right that a work-based rehab program that attempts to give people a sense of purpose in their lives so they don’t feel the need to turn to drugs could work. I think the moment you see those “in treatment” as a profit source instead of as people, any chance of it working goes out the window.