I assume that whenever there's a /z/ sound after a /dʒ / sound, it's pronounced as /ɪz /. So, since we could never have 'is' contracted after /dʒ / in speech, nor do we have it in writing. Like we don't have 'My knowledge's more limited than yours', although this is not true for 'has', 'My knowledge's been lost'. Right?
Not an important question at all, though!
Just because there is little or no discernable difference in pronunciation between knowledge is and knowledge's doesn't mean it isn't or can't be done. If you can say, "The car's parked outside." (and you can) I see no reason that you can't say, "Knowledge's useful." There might not be any practical value in doing so, but there's nothing wrong with it.
I don't think using 's for is after a noun is good writing style. Of course you can write it's, he's, she's, there's, here's and that's.
Good writing style…for what purpose? I agree that it's probably not a style I would choose for a formal essay, but in that case I probably would avoid she's and it's as well. I have more than one style, sometimes within one sentence, if it suits my needs. What's your objection to using 's for a noun, but not the pronoun referring to it?
So the choice to use contraction or not is not trivial.
Absolutely. Depends on intended impact, audience. Style.
I also agree with Robert on this matter. Even if pronounced identically, the spelling in a text could indicate a lot about the speaker or the precise intent (e.g. was vs. wuz; going vs. goin'; cannot vs. can not). Identical pronunciation with different spelling is worn by the English language as a badge of honor! This is no gray / grey area. Many words have alternate spellings, not counting the British vs. American spelling alternations. e.g. axe, ax; cancelled, canceled; doughnut, donut; mould, mold; omelette, omelet; storey, story (floor of a building); travelled, traveled; yoghurt, yogurt.
And Robert points out a good reason why one might contract "knowledge is" in writing: it avoids a misreading where the is is emphatic.
Finally, I want to point out that many other words and ending have this same feature as you point out in knowledge. Essentially, any word that ends in a sibilant sound is likely to sound the same followed by is, contracted or not.
Your class's being held in Smith hall.
That buzz's annoying me to no end!
My garage's cold in the winter.
The wash's almost ready for the clothesline.
Her watch's running fast.
The judge's in his chambers.
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