Denmark has a $20/hr minimum wage, and a nearly impossible to fall out of last-resort welfare payment (the kontanthjælp, "cash assistance") which provides a minimum income. And yet, it has quite low structural unemployment.
What those policies did do is destroy the low end of the labor market, the poorly paid dishwasher jobs supporting cheap restaurants. So what? That forced them to move upmarket. Denmark doesn't have $6 hamburger joints; instead, it has $12 hamburger joints. But it doesn't matter. The people who might be most impacted by that are precisely the people who now make the higher minimum incomes: when your income as a burger-joint dishwasher is triple what it is in the USA ($20/hr vs. $7/hr minimum wage, not to mention healthcare), you can certainly afford a doubling of the prices, and still come out ahead.
Now as a middle-class professional, it's probably bad for me: in the U.S. I could make a bunch of money and buy $6 hamburgers, while in Denmark I make a bunch of money and buy $12 hamburgers. But I can easily afford them either way, so I don't think social policy should be based on what benefits me.
The devil's advocate in me will tell you the truth as only I see it, not as the up/down votes in this board of mostly libertarian social darwinist and would-be technocrats will indicate:
The reason Denmark's system (or Australia's, or Canada's or S. Korea's, etc.) works is simply this: They have mostly one type of people there, and sometimes have a little bitty number of other types of people there, and mostly that little bitty number of people keep to themselves and open up exotic restaurants and try really, really hard to assimilate to the dominant culture and pay their taxes; and if they can't completely be as successful as the dominant culture, they will leave well enough alone.
In contrast, Americans will look at the person sitting next to them, see them as lazy, and refuse to pay taxes to support who they think is taking all of it. That person next to them may be poor, black, old, sick, hispanic, have down syndrome, is a teacher or a cop or a union steel worker or liberal or English major or hippie... ad nauseum. Whatever the reason, that person looking over at that "other" person flat-out refuses to allow "my hard earned money" to go to whoever the hell that is sitting next to them. It just won't happen.
Another thing, our poor and elderly are heavily, and I mean absolutely, unmistakeably, and incorrigibly self-effacing, self-hating, and in flat out denial over their station in life. They are told through attack ads during elections, through cable news, and through the water cooler, that blood-thirsty communists are alive and well and have a donkey replacing their hammer/sickle emblem. They're gonna take your guns, your religion, your money, your children and your property, give it to white trash and Mexicans and Godless welfare queens who drive better cars than you on the way to the food stamp office, and you'll be left with nothing but their hospital bills that you now have to pay because they bought a flat screen and new spinning rims for their car.
No one will ever admit that the heterogeneous society that is America collectively feels this way, because we didn't have a raw sore like the Economic downturn in 2008 for us to really see how much hate we have for one another. No one cares about each other when the bill comes.
I do think there is some notion of relatedness that ties in and leads to the system generally being supported. I'm not myself ethnically Danish, so I'm not sure it's purely ethnicity, but it's... something (and ethnicity probably does play a role in encouraging cohesion, if not the sole one).
Even in extreme cases, there's this general feeling of: yeah, so that person is an irresponsible alcoholic, but he's your irresponsible alcoholic, so you can't exactly let him die in the street. You've got to give him some basic shelter/food. I've run into that in other countries also, but only from closely related people: southern Europeans are very family-oriented, so if someone in their family is in danger of being a homeless alcoholic, they'll find a room for the person to sleep in, etc., since it's considered the family's responsibility to do something about them. Denmark doesn't emphasize family ties as much, though. Instead things tend to be done on a wider scale: it's sort of everyone's responsibility to take care of the proverbial crazy old uncle, rather than laying the responsibility on the handful of people who happen to be his nephews/nieces through accident of birth.
How does Denmark keep people out? There must be a million Poles banging on the doors for $20/hr dishwashing jobs. I suppose those jobs are only open to those that have the right blood line. How is there not a massive black-market for labor?
The teamsters, carpenters and a few food sectors are crying over cheap Polish labor every time they can, but hamburger joints can't hire people who can't speak Danish (because the place is essentially automated except with customer interaction).
Lego is moving some of the production of Lego out of the country.
There are indeed a number of people moving to Denmark. For well-educated people, the job market is particularly lucrative: Maersk can't find qualified office workers fast enough. For blue-collar jobs, though, language can be a significant barrier: many minimum-wage jobs require fluency in Danish, or at least in a related language such as Swedish. You can have any blood you want, but you've got to speak fluent Danish, which most foreigners don't...
Denmark does not have significant oil reserves; you may be thinking of Norway. The Danish economy is based on some weird mixture of: shipping (Maersk), entertainment (Lego), brewing (Carlsberg), and banking (Danske Bank et al.). There is a goal of making wind turbines a major industrial sector as well.
Though it is worth noting that Denmark is one of Europe's top oil producers, and is a net exporter. So Denmark does have economically significant reserves.
It's a net exporter, but a fairly small one. From what I can find, oil-related royalties contribute about 3% of the state budget. I can believe that still results in a fairly high ranking, but it's not exactly funding the country with that. The Texas state government gets more like 5% from oil, and hasn't succeeded in setting up a social-democratic system...
As somebody who biked from Copenhagen to Skagen to Amsterdam: I wish you had $12 burger joints! Outside of the big cities, restaurants of any type are very hard to find in Denmark, and the ones you do find often are often very bad ethnic restaurants. If you can actually get Danish food it's incredible, but you generally need an invitation into somebody's home to get it. The exception is breakfast; Hostels generally put on a great spread.
It's nice to see that your government is respectful towards those in need. In the UK, they call it "jobseeker's allowance" - like the type of allowance a parent gives a child.
What those policies did do is destroy the low end of the labor market, the poorly paid dishwasher jobs supporting cheap restaurants. So what? That forced them to move upmarket. Denmark doesn't have $6 hamburger joints; instead, it has $12 hamburger joints. But it doesn't matter. The people who might be most impacted by that are precisely the people who now make the higher minimum incomes: when your income as a burger-joint dishwasher is triple what it is in the USA ($20/hr vs. $7/hr minimum wage, not to mention healthcare), you can certainly afford a doubling of the prices, and still come out ahead.
Now as a middle-class professional, it's probably bad for me: in the U.S. I could make a bunch of money and buy $6 hamburgers, while in Denmark I make a bunch of money and buy $12 hamburgers. But I can easily afford them either way, so I don't think social policy should be based on what benefits me.