How can a knowledge economy work in practice?

How can a knowledge economy work in practice, with very few non-technical, lower-skilled niches for the workers?

A knowledge economy with very few non-technical lower skilled opportunities cannot work in practice. A knowledge economy is a service economy. The US is a knowledge economy now. It is not working so well.

Germany is still a manufacturing economy. It is not broken. Yes, there is the entire EU import-export drama which contributes to Germany's relatively greater prosperity; however, Germany did not outsource all its manufacturing and many of its highly-skilled worker positions (including software development and pharmaceuticals R&D) to developing nations, unlike the USA.

More education is not a panacea for economic growth. Here's a recent discussion of that, https://www.project-syndicate.org/commentary/education-economic-growth-by-ricardo-hausmann-2015-05 although it makes incorrect observations about productivity being mostly driven by primary school and high school education. Worker productivity is not the issue at all. In fact, reputable studies indicate that worker productivity has never been so high.

Capitalism can work, but needlessly complicated tax laws allow the wealthiest individuals and corporations to stash trillions of dollars in offshore accounts. (Profits soar to previously unrecorded heights; a few CEOs reap unprecedented benefits as the middle class in much of the developed world erodes). It is becoming increasingly difficult to operate a small business other than basic services in the USA, due to inconsistently applied and burdensome rules and regulations.