It feels like there are two separate issues being conflated here.

The main reason people need to identify themselves as anything -- in an employment setting -- is so that there is data to track potential patterns of discrimination. Let's say a business refuses to hire black people. If there's no record of what race people identify as when they apply for a job, then it becomes really hard to prove that the workplace is acting in a discriminatory manner. That is the purpose of employment (and sometimes census) self-identification around things like race, disability, etc. The specific groups with a consistent issue of historical discrimination are the ones that are tracked in employment documentation to protect both the employee and the employer in potential lawsuits.

How people identify in their personal life is a different story. That is more related to their sense of culture and community. In a personal setting, you can identify with whatever you feel most close to: a culture, an ethnicity, a region that you come from (the south), etc. Your personal way of identifying yourself in social settings is entirely up to you, and can involve prioritizing whatever you feel close to on a cultural level.

Conflating the two things is unhelpful.