Yup, spec work is all too common, but all inherently bad, IMHO. If your portfolio developed over countless years doesn’t show what you are capable of either it’s not that strong or the company doesn’t really understand design.
For a job interview, I would never do spec work. However, that being said, to muddy the waters a bit, in professional practice, spec work is somewhat different, and is looked at like pitching.
The big difference, is that the work by a professional for a pitch/spec is specific to that project. It allows the client to see your take on it and the specifics of the brief. Spec projects for a job are more of a way to either a)get free design (possibly not that likely that anything usable would come from a new grad looking for work without the full brief/understanding of the project), or b)check up on your portfolio or c) ???
In general, I’m a big opponent to all spec work, though I have done one or two spec designs for potential clients if it was financially responsible to do so (wasn’t that busy and the client could be a good catch, or got paid for the time), or the project was outside of what I normally do (ie. I did one concept round for a mobile phone device while my portfolio is almost all footwear).
As a student however applying for a job, I’d be a little more leery. Your portfolio should be strong enough to represent your skills. The design firm should know what they are looking at and how it typically corresponds to an applicant’s actual skills. Put it this way, if it’s about hiring the right guy, why not throw a few $ at the top 3 candidates (going by the going rate for pay for a junior would be only a few hundred $), for a small project and be above the board for all.
All said, I know how an unemployed student can look at the opportunity costs (doing spec work for nothing vs. having no job or nothing else to do) and realistically make a case for it. What is important, is to realize that it sets you up in a position of possibly always doing work for free (your boss asks you to work the weekend with no overtime on a project, and you want to keep your job, do you do it? how about working till midnight every day for a month? where do you draw the line…?)
I’ve always toyed with the idea of doing an impromptu, on the spot sketch exercise when interviewing applicants. It’s not about the final design (applicants can take the sketch), but seeing how someone can throw down on the spot, in a hurry, under pressure… never have had the chance to actually do it. Something like a 5 min design comp. I believe a lot can show in 5 min or less…
I’ve got no problem with Q&A design approach questions like CG mentions, those should be a part of any good interview.
for more on the spec issue see-