We are having the same issues - We want alternatives to American Apparel. I'm currently checking into other markets but it difficult to find kids tees that also enforce social responsibility - which is one of our requirements.
Anvil makes an 100% organic cotton tee that I've been using also and have been happy with, I believe they have youth sizes...and I know they carry a womens version.
I second the Anvil Knitwear recommendation – I actually prefer to use Anvil when I can, the only drawback to using Anvil is their limited selection of colors.
I'm still disappointed they discontinued their "Lake" color.
You should totally check out Bay Island Sportswear
Amazing quality and half the price of american apparel
the fit is second to none and while they don't have any online ordering yet,
their customer service is greeaat.
and you can order by piece.
I use a company called AS Tees, they are great. American made, great customer service and you don't have to buy a certain quantity to get wholesale prices. I HIGHLY recommend them.