1 The thinning process doesn't kill
Those who fail the test are not actually killed, but they are sent to an underground facility where they do labor work. In the final scene, it was shown that Ellie who was supposedly killed in the thinning is still alive along with other students.
2 The thinning isolates people
People who go through the thinning process are isolated from the rest of the population underground and might never see the surface. This was evident when the students who were sent to the first thinning never showed again in the movie until the final scene.
3 Failed students are tranquilized
Failed students are tranquilized by giving them an injection. After that, they are transferred to the place where they do the service work.
4 The thinning scores are not accurate
It was revealed by the end of the movie that the rich and powerful families manage to protect their children by altering the results and replacing their failed sons and daughters with other ones. (See The Usual Suspects (1995) Movie Explained)
5 Laina never failed
Laina got a very high score in the exam but she was declared a failure in order to replace someone else. This person could either be Blake or another student coming from a rich family.
6 Gov. Dean knew about the thinning
Gov. Dean seems to have known about the nature of the thinning that it doesn't really kill people. While this wasn't clear in the movie, the fact that he sentenced his own son might still show that he was aware that no deaths would happen. (See Oblivion (2013) Movie Explained)