Are you just using a rounded rectangle as the background for the Label? If that is the case, you can look into using UIIMage stretchableImageWithLeftCapWidth:topCapHeight. This will take an image you've created that has a left and top repeating section with a width you specify and automatically stretch it to your width.
If not, Key-Value observing is the way to go. Just to cover another option--this is like "playing with fire," as Apple programmer Evan Doll said in one of his Stanford lectures--you can use method swizzling to exchange one method implementation for another.
void method_exchangeImplementations(Method m1, Method m2);
In this case, you want to tweak the implementation of setText, but you also want to call the original setText in UILabel. So you could exchange setText with setTextAndUpdateSize, and inside setTextAndUpdateSize do what setText does originally plus add on a little more. If you are confused or think this is a bad idea, it probably is. You can get a Method object to pass into method_exchangeImplementations by calling class_getInstanceMethod([NSSTring class], @selector (methodName).
Once your method swizzle has been called once, inside your new method you can then call the old implementation of setText from within the new one by using, yes, setTextAndUpdateSize. It's confusing and not recommended, but it works. A good example can be found in the developer sample code.