The dictionary defines the relevant meaning of the word "identity" as "the qualities, beliefs, etc., that make a particular person or group different from others". However, this definition raises an important question: Making this person or group "different from others" according to whom?
If I decide that people with red hair are (insert negative adjective "X" here), does this automatically mean that red-haired people now have an identity to be X? No, of course not. Instead, everyone has the right to define one's own identity. Your identity is whatever you identify yourself with, not whatever identities other people are trying to push on you.
Therefore, the thesis recommends that the word "identity" is reserved for being used only in this limited sense. For any outside view of who and what people are, use instead the word "cateity" - which stands for the intersection of categorization and identity.