Denmark

For years, Denmark was held out as a model to countries with high unemployment and as a progressive touchstone to liberals in the United States. The Danes, despite their lavish social welfare state, managed to keep joblessness remarkably low.

But now Denmark — which allows employers to hire and fire at will while relying on an elaborate system of training, subsidies for those between jobs and aggressive measures to press the unemployed into available openings — is facing its own strains. As a result, it is beginning to tighten up.

Struggling to keep its budget under control after the financial crisis, the government in June cut into its benefits system, the world's most generous, by limiting unemployment payments to two years instead of four. Having found that recipients either get work right away or take any job as their checks run out, officials are also redoubling long-standing efforts to move Danes more quickly out of the safety net.

To be sure, Denmark is not abandoning the welfare state. Government spending accounts for about half of gross domestic product and few Danes complain about a top income tax rate of 50 percent that generously finances unemployment, pensions, health care and other accoutrements that studies claim make Danes the happiest people on earth.

Hardly anyone in Denmark, a small, tranquil country of 5.5 million people, falls through the cracks. The constitution even guarantees Danes the right to work and to receive public assistance if they stumble. But sustaining a benevolent nanny state is proving to be challenging even for the notably generous Danes.

In Denmark, employers have carte blanche to hire and fire, and laid-off people are guaranteed up to 80 percent of their wages in benefits, a figure capped for high earners. In turn, they must participate in retraining and job placement programs tailored to get them back to work, which the government has intensified.

Each year, a stunning 30 percent of Danes change jobs, knowing the system will allow them to pay rent and buy food so they can focus on landing a new position. About 80 percent belong to unions, which manage the workplace, help run the unemployment insurance program and press the laid off into retraining.

But as the financial crisis erased jobs, the government — Denmark's largest employer — has had to provide more temporary work and intensify coaching. Unemployment is at 4.2 percent today, lower than most European countries, though more than twice the 1.7 percent rate two years ago.

As in Germany and some other European countries, hundreds of Danish employers have also embraced government-subsidized short-work programs, a tactic adopted to keep a lid on unemployment. The plans allow companies to cut working hours to hold onto highly skilled workers, rather than laying them off when times are tough.

Danish politicians say their program is still working well. But unions argue that the cutbacks in the safety net go too far and are planning to press companies to lengthen the typical one- to three-month notice period before dismissals.

Business leaders fear that would push Denmark toward the type of rigid systems found in Spain, Italy and France, where it can take a year or more to lay off most employees, draining finances and raising the danger of more job cuts.