Abstract: This paper constructs a theoretical model of workers’ effort selection under peer incentive and pressure mechanisms, and discusses the influence of peer ability on workers’ effort and income in a competitive environment, while a panel data model is established to simultaneously address the endogeneity and reflection problems of peer characteristic variables for empirical testing. The theoretical analysis indicates that an increase in peer ability can impact workers’ income through incentives and pressures. Incentives bring positive effects by increasing the output of effort, while the pressure effect will increase the effort of workers, which in turn will lead to an increase in income. However, excessive pressure will have a frustration effect, which will make individuals reduce their efforts and income. The empirical results show that in the low-skilled flexible employment group, an increase in peer ability mainly leads to the improvement of workers’ efforts through the pressure effect, which in turn leads to the improvement of income; low-skilled flexible employment groups with younger age, lower ability and fewer peers are more sensitive to peer pressure; there is a frustration effect in low-skilled traditional employment groups with low job satisfaction. Therefore, governments and enterprises should pay attention to the role of incentive and pressure effects among workers to avoid frustration effects. Moderate incentives and pressures help to improve the quality of employment of workers.

Key words: peer effect, competitive environment, incentive effect, pressure effect