Children worked in factories to raise money for their families. Most families were poor, and needed money for food and rent. Businesses employed children because they either needed more people to work there, were able for the children to work in (I'll explain a little more later), and also just because some children are faster workers that adults. Not all businesses employed children, though. Some, like textile and flour mills employed children because they weren't too dangerous, and didn't need expertise, or ability to do so. Other factories, such as car factories, didn't (or couldn't) employ children because it was 1. too dangerous, 2. the children didn't have expertise and 3. the children didn't have the ability to do so.
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American has always had a federal govrnment.