One of the two main reasonz that diplomas (or grades) are economically valuable in the first place is that they perform a signaling function. They signal, however imperfectly, some measure of competency, discipline, and intelligence. (Some diplomas also signal membership in a certain social class.) Employers utilize those signals to make hiring decisions, which makes them valuable.

When those signals become sufficiently polluted, employers will invariably turn to some other signal.

Lowering the standards is a move politicians often make because it "solves" the problem you outline in the short term, even though it's ultimately self-defeating because it directly undermines the virtue signaling function of academic credentials. It's a "solution" which requires no funding, no changes to teaching practices, and no changes to the ways schools are organized. So it's attractive and politically feasible even though it's harmful and profoundly stupid.

The solutions you've proposed are the right kind of solution because they preserve the signaling function of credentials. But so far they're approaches that public schools and the governments that run them seem politically incapable of taking.

There's also something else to confront here in that even when the competency signaling functions are intact, academic and professional credentials are also to some extent scarcity goods, valuable precisely because not everyone has them. So if you solve all of these problems and you still allow grades to at least attempt to fulfill their purpose, a functional and coherent grades system will, to some extent, always perform differentiation of the labor market or be obviated by its failure to differentiate. The inequality that you see manifest as students who fail to graduate falling behind in life is actually downstream of the schools, and it has to do with how many seats are available for what kinds of jobs in the economy. If you address the former without addressing the latter, the real social justice impact is going to be limited.

And you ultimately can't educate your way out of having a working class; at some point you have to look elsewhere for assuring the dignity, security, and comfort of people who academically underperform relative to others.