where sk and sl are the shares of capital and labor income, respectively.4
It is also possible to
extend this formulation to incorporate factor-augmenting improvements in the quality of the
factor inputs, such as improved educational skills of the workforce.
As discussed more fully below, it is often difficult to obtain meaningful time series
estimates of factor income shares. Thus, many studies adopt a more restricted Cobb-Douglas
production function in which the contribution of each factor is assumed to be constant: