Leader Kezia Dugdale has pledged to introduce a Scottish graduation certificate if her party is elected in May.
The certificate would be a qualification gained at the senior phase of secondary school and would involve vocational courses, work experience and traditional exams.
This would allow formal recognition for young people with fewer traditional qualifications, Labour said.
It would allow schools to offer more vocational options in partnership with colleges and employers, and university level courses.
Scottish Labour would also use Scotland’s new powers to ask those earning more than £150,000 a year to pay a 50p top rate of income tax to invest in schools to establish a Fair Start Fund.
This would mean an extra £1,000 for every primary pupil from a deprived background in Scotland, according to Labour.
Ms Dugdale said: “Our schools need investment and reform, not more SNP cuts.
“Labour will establish a Scottish graduation certificate for the thousands of young people across the country who have skills and talents that simply aren’t recognised by today’s education system.
“Labour will also reform the funding for tackling the gap between the richest and the rest.
“This is a vital investment in the future of our country. It is what will allow our young people to compete for the jobs of the future and grow our economy for decades to come.
“Faced with the choice between using the powers of the Parliament to invest in the future or carrying on with the SNP’s cuts to schools, Labour will always choose to use the powers.
“Labour would ask the wealthiest few would pay the most, including those earning more than £150,000 a year.
“We would give that extra money to put power into the hands of teachers, who are best-placed to take decisions about how we close the gap between the richest and the rest.
“Our teachers have the knowledge, they just need the funding to cut the gap between the richest and the rest - Labour will deliver it.”
Ms Dugdale will discuss her plans with senior pupils at Peebles High SchooL in the Scottish Borders later today.