My pet analogy for this scenario is: Go to all of your employees. One by one ask them to solve a programming challenge for you. Let them know if they don't produce a suitable result (to your liking) in the next 40 minutes, you will fire them immediately. See how they do.
I don't think its wrong to do these types of interviews. But interview stress is real, and it affects people in strange ways. I bombed one of these interviews once and the interviewer was convinced I was "not a front-end programmer". I had just left a job where I had written literally hundreds of thousands of lines of (modern) front-end code, daily, for the last several years. More complex than what I'd be writing at that company (I was eventually hired in spite of this particular interview). And oddest of all, that interviewer was (very soon after) let go. Such is the world of programming interviews.
So yeah. I don't think its necessarily the worst. It might even be the best way to interview candidates. But we all need to take our asessemtns with a huge grain of salt and stop being so judgemental.
Your analogy doesn't really seem too similar to interviews. There will be more stress about getting fired and losing your income than potentially failing an interview which has no effect on your current income, since you still have your current job while interviewing, presumably.
That would be the case for all new grads (substantial portion of applicants), first time applicants (who may be working some other, terrible job), poeple who were laid off / fired, and people who have taken time off. Its not meant to be a perfect analogy, its mean to nudge people into the realization of how stressful interviewing can be. Especially if it is for a company you really want to work for.
Its not meant to be a perfect analogy but to ellucidate why it may be more stressful than you might imagine. But in the spirit of good discussion: Lets compare someone who has 7 years of experience at Facebook, 500k in the bank, and strong interviewing skills with an inbox full of recruiter spam to someone interviewing for Facebook, who has no other interviews, and is currently poor and in debt. Are you so sure the person at facebook would be more stressed than the person applying?
In our case, and this was 20 years ago, it was painfully obvious immediately whether the person knew anything about coding at all; we bent over backwards to do anything that would help (they could pick any language, we'd modify requirements, full internet access, etc) and a good percentage would just flounder.
reality is there are just a lot of people who can't really code -- IN THE ARTIFICIAL CONTEXT OF AN INTERVIEW - out there.
FIFY.