I agree with the premise that living in Chicago will give one a better understanding of the Chicago community, and will therefore enhance a faculty member's understanding of the community they are teaching. But is that sufficient reason to justify a residency requirement? Of all the factors that make a faculty person better at teaching, I don't see how this is special, let alone essential.
An understanding of a community does not give equal benefit for all disciplines. A humanities professor will gain tremendous benefit from an understanding of the community. Someone who teaches calculus will probably not benefit as much.
The law doesn't take into account the many other factors that contribute to a person's understanding of the community. A professor who lived in Schaumburg, but who has taught in Chicago for twenty years will most likely have a much greater understanding of the Chicago community than a professor who moved to the Lakeview neighborhood two years ago.
Finally, if the idea behind the requirement is to enhance our faculty's understanding of the community, then to the extent that (1) living in a community enhances one's understanding of the community, and to the extent that (2) the CCC faculty is an intellectual community itself, the CCC community will actually have less self-awareness of their urban community as otherwise. The implication of the law is that amongst all the CCC full-time faculty, none of them live in the suburbs. This very likely leads to fewer connections with suburban colleges and communities. Our faculty do not attend suburban churches, go to parent-teacher conferences in suburban schools, do not have conversations with their suburban neighbors, and do not participate in suburban community activities. Laws like this seem to discourage diversity amongst the faculty.
Chances are, even without a residency requirement, the majority of faculty would still live within the city. A requirement is prohibitive and restricts the diversity that is the lifeblood of any intellectual community.
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