This year’s new MBA graduates face one of the toughest job markets in decades, filled with competition from more experienced out-of-work executives, a shortage of open jobs and cutbacks in campus recruiting.

The MBA job market is especially tough for those who had anything to do with investment banking or mortgage banking, even if they were in school when the market began to decline in 2008.

“The MBA is still a respected degree,” says Maury Hanigan, president of MBA Scouting Report in New York City. “But if you’ve come out of one of the big banks that are in the headlines, managers are looking at you fairly skeptically. If you’re coming out of business school and not connected to Wall Street, I don’t think you’re tarnished.”

No matter what your field, competition from those who continued to move up the corporate ladder while you went to business school as well as those who graduated before you, is fierce, says Diane Morgan, director of career services for the London Business School in the United Kingdom. “People who are graduating now are up against graduates from last year and the year before who have a little more experience,” she says. “You’ll take them before you take a recent grad.”

That’s particularly true if the experienced hire costs less than the new MBA. “Companies hiring MBAs to manage a highly responsible job right off the bat are rethinking MBAs, because they’re expensive and their ramp-up time is long,” Hanigan says. “Companies can find experienced people in the job market for less money.”

However, industries such as consulting and investment banking that hire MBAs for their brainpower rather than their functional experience are still hiring them, just in smaller numbers. “It’s not a change in philosophy,” Hanigan says. “They’re still hiring to bring high-potential talent into the organization to fill the management pipeline, rather than shovel-ready employees.”

When you move into unique industries that value background knowledge, such as pharmaceutical or petrochemical, there’s a split among employers, with some still recruiting MBAs and others preferring hires with demonstrated industry experience.

Even summer MBA internship hiring is down, and companies hiring MBA interns are very specific about what the intern will do and the experience needed to land the internship, Hanigan says.

Career-Change Caution

The tight job market has also crushed the hopes of many who went into an MBA program believing it would help them change professions. “If you’re a career changer, you’ve got a real challenge in front of you,” Hanigan says. “It’s hard to bring someone into a six-figure position when they have no functional experience. It creates resentment among the other employees.”

The best way to use your MBA to change functions is to stay in the industry you came out of, she adds. For example, if you were an insurance underwriter and you got your MBA to switch into marketing, seeking a marketing position at an insurance company will be easier than finding the same work with a consumer-packaged goods company.

If you are seeking a functional change, mention that in your networking communications by saying, “I used to be in this function, and I’m in an MBA program with the goal of transitioning to that function after graduation.” People will respond more readily to networking when you have a definite goal and you show you’ve done your homework about the field, Hanigan says.

Step It Up

MBA recruiters surveyed by the Graduate Management Admission Council said they planned to hire six MBAs per company this year, down from 12 last year. With companies cutting back on MBA hiring, graduates need to step up their game. “Going the conventional route, where recruiters show up on campus, is not bearing fruit this year,” says Alison Damast, a staff writer covering higher education for BusinessWeek. “Students have to be more aggressive and do a lot of hunting on their own [to unearth] opportunities that might not be obvious on the career-services job board.”

Consider small businesses, which can afford MBAs for the first time in many years, and the federal government, which is flush with stimulus money and overflowing with retirement-age employees.

“Don’t give up hope because the school year is over,” Damast says. “There’s a lot of last-minute hiring that goes on as companies get a better idea of their needs. It’s easy to get depressed in this environment and lose your motivation, but keep with it.”

And as for that possible stigma against MBAs? Don’t worry about it, Damast says. She talks to recruiters who hire MBAs all the time, and none have changed their hiring plans because of Wall Street’s black eye. “They’re not hiring English majors instead,” she says.