Not really.
1) more than we pay now, i'm aware of that.
2) not really, our employment rate is going down, 75% of our unemployed are drug addicts and criminals. It's like 3.1% in my province.
3) yes, it is inefficient, but to be honest, it beats paying for them to sit around and improve their criminal skills. hell, we can find some of them (car thieves?) decent jobs, teach them a skill, maybe they'll find one they like and abandon their criminal ways. The murderers, rapists and the like, they don't deserve to be let out of their cage, even their 1 hour of excercise a day.
edit: in relation to #3, theres been a program in the states involving dogs, they work with dogs, and basically groom, care for and take the dogs through obedience classes and such. For some of the people, it does nothing. Others have started dog care facilities, started running dog obedience classes, this teaches them a skill so they don't have to steal TV's or sell crack ot kids or stab their husbands for their life insurance policy.