Earlier quoted context omitted.
"Overqualified" has got to be the softest insult you can throw at a job seeker. It ostensibly says "we aren't secure in ourselves as employers to challenge our workers to produce great work, nor do we value original thought, so we'd rather hire drones that don't rattle the cage".
I guess you could hire an overqualified employee as a favor, because he really seems to need the job. He will be happy for a few months until he finds something better. It's up to you.
But I guess where I'm finding myself endlessly perplexed is the default assumption you're describing (and I'll gladly offer a concession to), versus the alternative of overqualified employees being seen as potential force multipliers for increasing productivity by allowing them to use their additional qualifications via some kind of tract towards management or specialized role? Even if it's on a small team?
Bob is overqualified for X, yet exceptional at Y. X+Y just happens to be a thing the team could possibly benefit from, helping the company as a whole. Maybe we should think about hiring Bob and grooming him to take ownership of X+Y and stewarding the rest of the team, helping them learn and become masters of X+Y in due time.
Does that make sense?
Hopefully the phrasing isn't too god awful there, coffee hasn't hit the lower brain yet :P