Merging labels is also possible, albeit using renaming feature. For example, if you have three labels named backend, back-end and Backend and want to keep only the last one i.e Backend, you can rename the first two labels to Backend. This way, those labels will be merged.
1. Field 'labels' cannot be set. It is not on the appropriate screen, or unknown.
When editing label name, you might get the above error. This happens when label is not in Create or Edit Screen. You can add label to those screen, and it should work as expected.
You can find screens from Project settings → Screens.
2. Deleted labels are still suggested in label field
Sometimes deleted labels might be still suggested as recent labels. This is caused by Jira storing recently used labels in browser local storage. There is ticket to fix this in Jira Issue tracker.
In the meantime, you can delete the local storage data from your browser. To do that, open Console → Application (or Storage in Firefox) → Local Storage. After that, find your Jira URL, right click and use Delete All popup to delete temporary data stored in your browser.