Why fall in unemployment benefits decrease wages?

Answer 1

Unemployment benefits have to match the cost of living to be of any use.

Because the minimum wage is often not much above this cost of living, there is little motivation for some people to work. In fact having a job could be more expensive, because they lose other benefits, have to travel to work, buy clothes etc....so why bother (or that is how some people think).

If you reduce the benefit then employers can reduce their wages (or not increase them against inflation) and still get employees.

As a side note, many governments are starting to introduce more partial benefit schemes, than support low income people so that they are motivated to work (though of course this introduces its own problems)