The recent recession was associated not only with a marked disruption in the credit market, but also a sharp deterioration in labor market conditions, as evidenced by high unemployment rates and an outward shift in the Beveridge curve. Motivated by such co-movements of the credit market and the labor market, I develop a tractable dynamic model with heterogeneous entrepreneurs, credit constraints, and labor-search frictions. In this framework, the misallocation of capital across firms has an adverse effect on the matching efficiency in the labor market. I then quantify the importance of capital misallocation for understanding the behavior of unemployment rate. I find that the credit crunch was the key driving force behind the outward shift in the Beveridge curve during and after the Great Recession. More broadly, I find that credit market frictions and labor search frictions almost equally contributed to unemployment over all business cycles between 1951 and 2011.