This paper builds and calibrates a model of competitive search that can reproduce a set of stylized facts concerning major impacts of the decade long stagnation and subsequent changes in the labor market in Japan. We highlight the role played by varying degrees of relation specific investments in forming employment relations. By embedding such a system of employment in an economy plagued with limited capital mobility, we show that the macro technology shocks can generate upward drift in Beveridge curve, pro-longed periods of labor adjustments, decline in the share of jobs with costly investment in training, and strong cohort effects. The paper also simulates impacts of 'zombie' jobs, firing cost, and subsidy for training. Through these simulations we show that the combination of the macro technology shocks and high cost of re-training is responsible for the sluggish labor adjustment, shrinking core employment, and stagnant productivity.