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Portugal and Spain manifest many fundamental political and economic contrasts along with numerous similarities, thus presenting social scientists with a series of puzzles requiring explanation. Focusing on Portugal’s success and Spain’s failure in employment creation, and on differences in the quality and vitality of democracy, the paper argues that much of the explanation for these contrasts lies in enduring legacies of the two very different transitions to democracy. The analysis of the Iberian employment puzzle emphasizes the contribution of Portugal’s revolutionary path to democracy to the country’s subsequent success in generating employment as a result of several intervening factors: 1) a substantial increase in the participation of women in the labor force, 2) bank lending practices that have offered much more credit to Portuguese small companies than has been made avilable to their Spanish counterparts, and 3) certain employment-friendly characteristics of the Portuguese welfare state. [ABSTRACT FROM AUTHOR]