The term derives from the practice of "sweaters" in the highly competitive middle-man shops in the garment industry driving underpaid needlewomen and tailors, often immigrants.
1903  No more strikes, No more lockouts, No more hold ups, No more unions, Healthy niggers sound in wind and limb well broke to handcuffs, two pair of genuine sweat shop overalls given with each piece of ebony.
1916  Also, if the Jews in their sweatshops went against the labour unions, why was he so hostile to the Jews?
1963  In those days [the Montreal garment industry] was considered the sweatshop industry.