Another problem was the subsidisation of capital costs. Rightly, the German government refused the subsidisation of labour costs, since this would have led to a distortion of the labour market, delaying structural adjustment. While it facilitated the massive capital injection needed in the former GDR, at the same time it led to investment in high tech plants with few paid, highly-skilled workplaces. The former GDR did not specialise according to its comparative advantage, namely an abundant, well-educated and cheap working force. Policies, such as a larger wage-spread, to facilitate creation of jobs in the service sector are urgently needed.
Unemployment remains the single most important problem in East Germany.