Synopsis:

A strike is imminent at the Sleep-Tite Pajama Factory, where the workers churn out pajamas at a backbreaking pace. In the middle of this, a new superintendent, Sid Sorokin, has come from out of town to work in the factory. The union, led by Prez, is seeking a wage raise of seven-and-a-half cents an hour. Sid and Babe are in opposite camps, yet romantic interest is sparked at their first encounter. Despite cajoling from her fellow garment workers, Babe appears to reject Sid. Meanwhile, Hines, the popular efficiency expert, is in love with Gladys, the company president's secretary, but is pushing her away with his jealous behavior. After witnessing a fight between the couple, Sid's secretary, Mabel, tries to help Hines break from his jealous ways. Meanwhile, Sid, rejected again by Babe, is forced to confide his feelings to a dictaphone.

During the annual company picnic, kicked off with the official Sleep-Tite Company Anthem, Prez chases after Gladys, who rejects his advances, a drunken Hines demonstrates his knife throwing act (these knives are thrown at Babe), and Babe warms up to Sid. As the picnic-goers head home, Prez turns his attentions to Mae, who responds in the positive far more quickly and aggressively than he'd expected. At Babe's home, Sid's romantic overtures are deflected by Babe, who makes casual conversation on tangential subjects. Eventually the walls come down between the two, who admit their love for one another, but their estrangement is reinforced when they return to the factory. A slow-down is staged by the union, strongly supported by Babe. Sid, as factory superintendent, demands an "honest day's work" and threatens to fire slackers. Babe, however, is still determined to fight for their cause, and kicks her foot into the machinery, causes a general breakdown and Sid reluctantly fires her. As she leaves, he begins to wonder again whether a romance with her is a mistake.

At the Union meeting, Gladys (Mae in the 2006 revival) performs for the rest of the union, with "the boys from the cutting room floor". After the main meeting, the Grievance Committee meets at Babe's house, to discuss further tactics, such as mismatching sizes of pajamas and sewing the fly-buttons onto the bottoms such that they are likely to come off and leave their wearer pants-less. At the meeting, as Prez and Mae's relationship is waning, Sid arrives and tries to smooth things over with Babe. Despite her feelings for Sid, she pushes him away.

Back at the factory, the girls reassure Hines, who is personally offended by the slow down. Sid, now convinced that Babe's championship of the union is justified, takes Gladys out for the evening to a night club, "Hernando's Hideaway", where he wheedles the key to the company's books from her. Hines and Babe each discover the pair and assume they are becoming romantically involved. Babe storms out, and Hines believes his jealous imaginings have come true.

Using Gladys' key, Sid accesses the firm's books and discovers that the boss, Hasler, has already tacked on the extra seven and one-half cents to the production cost, but has kept all the extra profits for himself.

In Gladys' office, Hines, still jealous out of his mind, flings knives past Sid and Gladys (deliberately missing, he claims), narrowly missing an increasingly paranoid Mr. Hasler. After detaining Hines, Sid then brings about Hasler's consent to a pay raise and rushes to bring the news to the Union Rally, already in progress. This news brings peace to the factory and to his love life, allowing him to reconnect with Babe. Everyone goes out to celebrate—at Hernando's Hideaway.