The impact of the 2008 financial crisis led to the imposition of severe ‘crisis measures’ focused on alleviating budget deficits at all levels of Spanish government. In this context, the central government sought to restrict regional and local government spending. One of the key mechanisms at the Spanish government’s disposal was restricting public sector employment. This paper examines the responses to these centrally imposed measures in two local municipal governments, Bilbao (Basque Country) and Parla (Madrid) between 2010 and 2015. The paper applies a ‘varieties of capitalism’ conceptual approach to investigate what it refers to as subnational institutional systems and suggests that processes of economic and social adjustment in Spain are also influenced by distinctive regional and local political economic arrangements. Key factors contributing to the different industrial relations outcomes observed in the two case study locations are described and discussed. The results show that different types and degrees of coordination can co-exist within a decentralised national political economy.