By labels, are you referring to Tags?
Tags are not very convenient for some reasons:
1. All tags are visible in the tags panel regardless of the items in the current workspace i.e. if I have 50 tags, all will be visible even if I go to a workspace with only 10 items, which really makes browsing documents inefficient using tags. If tags in tags panel would filter down to only those tags currently associated with items in the current workspace, it would make sense to use them for categorising information. Think about it - what's the point of showing tags which are not associated with any of the items currently visible? And this gets worse as the number of tags increase.
2. If you have a large number of documents in a workspace, sometimes you don't want all of them to be visible at once. Folders allow logical information to be grouped together.
I think tags are quite handy for quickly searching certain items. However, they should not replace folders, as both have specific uses.