Cutting out benefits can reduce the jobless rate in two ways, says Mr. Feroli [Michael Feroli, chief U.S. economist at J.P. Morgan], pointing to past economic literature. Under the employment effect, people will take jobs even if the work pays less than the job seekers want. In the participation effect, people will drop out of the measured workforce since actively seeking a job (a criterion for being labeled officially unemployed) no longer carries an advantage of receiving jobless benefits.
Read more at What Happens When Unemployment Benefits Are Cut? North Carolina Offers a Clue – Real Time Economics – WSJ.