This article explores the urban labor market consequences of large‐scale incarceration, a policy with massively detrimental implications for communities of color. Case study evidence from Chicago suggests that the prison system has come to assume the role of a significant (urban) labor market institution, the regulatory outcomes of which are revealed in the social production of systemic unemployability across a criminalized class of African–American males, the hypertrophied economic and social decline of those ‘receiving communities’ to which thousands of ex‐convicts return, and the remorseless rise of recidivism rates. Notwithstanding the significant social costs, the churning of the prison population through the lower reaches of the labor market is associated with the further degradation of contingent and informal‐economy jobs, the hardening of patterns of radical segregation, and the long‐term erosion of employment prospects within the growing ex‐offender population, for whom social stigma, institutional marginalization and economic disenfranchisement assume the status of an extended form of incarceration.