<p>Taking the 2003 vertical management reform of environmental protection department in Shaanxi Province as a quasi-experiment, we use industrial enterprise data and a Geographic Regression Discontinuity (GRD) design to estimate the impact of vertical management reform (VMR) on the skill premium. We find that the vertical management reform has exacerbated the skill premium. Specifically, in border areas, compared to the side without vertical management reform, enterprises in the polluting sector that have experienced vertical management reform have a skill premium. In addition, the skill premium is not significant in enterprises in non-polluting industries. We further find that enterprises pass on the environmental governance costs to unskilled laborers by reducing wages, exacerbating the skill premium. Finally, we find that the VMR implemented in Shaanxi Province failed to completely change local protectionism.</p>