There are some ethical issues here despite the ecological ones.
Firstly we should only be punishing criminals, if an asylum seeker or an economic migrant is awaiting a decision or is on a visa then they've done nothing wrong and shouldn't be punished for it.
If they overstay their visa or are here illegally then they're effectively criminals and shouldn't be treated as special cases.
There are then general issues relating to putting convicts (of any type ) to work.
Firstly you shouldn't be depriving commerical organisations of their bread and butter or undercutting them. If you were running a recycling company I dare say you'd not be best pleased to hear that you were going to lose work and lay people off because of unpaid forced labour.
Secondly there's the security issue already raised. - Construct special prisons enclosing closed landfill sites perhaps
Thirdly there's health and safety. If you're putting people to work like this you've got to be able to be reasonably sure of their safety. I'm not an expert but I'd suspect there are ground stability risks and risks of being buried under a collapsed heap there's almost certainly more to it than a few suits.
Having said that if (and it's quite a big if) you can get around these issues there's no overring reason I can think of not to do something like this.
Can't see it helping recruitment of prison officers though!