Even if you were absolutely correct about improved outcomes (I don't know what/if the data shows), there is still a major problem that would still make prison labor as it exists today problematic or even immoral: it creates a huge incentive to imprison more people through various means (stricter laws, opposition to drug reform, mandatory minimums etc.). The prison industrial complex is a major lobby for these issues, so this is not just a theoretical concern.

A system that would improve the life of people after prison without falling for this pitfall would have to entirely remove the profit motive from prison labor (for example by prohibiting the prison to keep any proceeds from prison labor, or by paying inmates competitive rates for the work they are doing, so that overall prison labor is guaranteed to be more expensive than just hiring/outsourcing etc).