There's a real divide on the issue. Job seekers think it's incredibly rude, while many companies feel perfectly justified in not putting resources into dealing with candidates they're no longer interested in hiring.
Personally, I think it's inexcusable—throughout the hiring process but particularly after a company has engaged with an applicant in some way, like a phone interview or an in-person interview. It's callous and dismissive and lacks any appreciation for the fact that the candidate is anxiously waiting to hear an answer—any answer—and keeps waiting and waiting, long after a decision has been made.
Some companies defend this practice by claiming they couldn't possibly find time to respond to all the tens of thousands of applications they get. I call BS on that. Have an intern send out a form letter by E-mail. It's fast, and it's free. If your company is so large—and thus your applicant pool so mammoth—that an intern would be overwhelmed by the project, then you're large enough that you're probably using some kind of database to track applicants. Use it to E-mail them a rejection, too.
But if nothing else, employers have an obligation to warn candidates that they may not hear anything: If you're committed to being rude, at least state clearly on your website that you won't get in touch unless you're interested in talking more with an applicant, so that at least people know what to expect.
And for the record, my organization makes a point of responding (often with a form letter, granted, but it's a response) to each and every applicant who approaches us. I am amazed by the number of rejected candidates who E-mail us back to thank us for simply letting them know they are out of the running. Goodwill isn't a bad thing to generate among people we might want to hire in the future, to say nothing of it simply being the right thing to do.
Alison Green is chief of staff for a medium-size d nonprofit where she oversees day-to-day management of the staff as well as hiring, firing, and staff development. She is working with the Management Center to coauthor a book on nonprofit management. Her writings have been published in the Washington Post, the New York Times, Maxim, and dozens of other newspapers. She blogs at Ask a Manager.