Labor Day began as a muncipal holiday -- the New York City Central Labor Union sponsored the first parade on September 5, 1882. Within few years other central labor bodies were following their example and by 1885 the Knights of Labor and the Federation of Organized Trades and Labor Unions were calling for a national holiday in honor of working people.
In 1887 Oregon became the first state to pass a law establishing the first Monday in September as Labor Day. After 32 states took similar action by 1894, the United States Congress passed legislation making Labor Day a legal holiday.
(biography of Sam Gompers here)
First Labor Day march, New York City (more here)