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The initial grind is a bit of a pita, but oh well..
It reduces their stats, but doesn't show it on the character screen. Lower INT means less accuracy on your Black Magic spells, which means less hits (Fire 3 does up to 3 "hits", which is why it does more damage than Fire 1), which means less damage. The same goes for SPI with White Mages, but it doesn't seem to effect them nearly as strongly.
Knife and Staff are -5 (Mace types are -20 though!), while Unarmed is +/-0. Everything else, barring a few special cases (end game Swords), is -50 or worse.