I've never heard anyone express that concern. Rather, I would think the reason why small businesses won't hire would more likely be because the wages are so high here.

You can quite easily hire for work for small periods, e.g. summer job style.

I wonder if you have misunderstood your friends. The Danish system is different from other Nordic countries in that dismissal is quite easy from legal point of view (even if for someone running a small company, it may still be psychologically very difficult).

The unemployment benefits are good, although the officials monitoring it also force the unemployed to be quite active to find a new job.

This was his complaint 10 years ago, from an earlier time (perhaps 20 years ago?) he was considering starting a business.

I probably have misunderstood his complaints, as you and Tehnix both point out; I'll reach out to him to get the details right...

Perhaps that experience is more than 20 years old. Denmark started to implement a thorough labour market reform in 1990's and coined the term "flexicurity", to denote a system where hiring and firing are extremely simple, but employees have good unemployment benefits and receive active guidance by authorities for re-employment. This has been created since then.

https://en.wikipedia.org/wiki/Flexicurity

Yes, this unusual Danish system is why I said Denmark -- it's pretty different from the rest of Europe.