This paper utilizes a specific factor model where rewards to labor and capital, and employment are determined by efficient bargaining between entrepreneurs and workers in each sector. Union threat points arise endogenously since workers` outside opportunities in one sector depend on the bargain struck in the other sector. This fully unionized economy will generally be characterized by unemployment and inter- industry wage differentials. Both trade and capital liberalization may lead to an increase in overall employment. (JEL Classifications: F10, F15, F20, J51, J64)