Being watched all the time seems nowhere near as bad as being kept in a cell or forced labor.

They are not mutually exclusive. Read up on the concept of a panopticon, it is just a form of prison that maximizes the oppression by surveillance by extending it into your own mind as a paranoid knowing that you are almost certainly seen at all times. Aside from that, it still has all the features of any other prison including compelled labor. It's just that you are deprived a sense of privacy even in your mind, on top of it, which is a sort of crippling of the soul.

Being watched is a cell of its own kind