I've been analysing the lyrics of 'Magic Dance', from Labyrinth (Henson, 1986), and you would never believe it: in a film featuring goblins, child abduction, and Bogs of Eternal Stench, it's a really weird song.
Making the assumption that the narrative is from a first person perspective, we have Jareth concerned that his 'baby' is depressed because the primary object of its affections and joy has departed (we are left to ponder the circumstances of this disappearance). Given the context of the scene, we may also assume that the 'baby' mentioned is a literal infant, the abducted Toby.
Jareth has seemingly enlisted his compatriots to assist in providing suggestions of alternative therapies to heal the child of its despondency, ranging from organic poultices and tinctures to electroshock therapy. It is distressing that one lone voice recommends physical violence.
The baby then offers a solution in the form of 'dance magic' and 'jump magic'. The child seemingly holds stock in the curative properties of shamanistic physical displays, or perhaps it is merely distracted from its melancholia by acts of capers and cavorting.
We could also possibly surmise that Jareth may perhaps be recounting a story of another 'babe' he has been reminded of. That means there's less chance that the baby is an infant, as indicated in the introductory paragraph and the chance of being able to vocalise their self-diagnosis becomes much more feasible.
However, given that Jareth claims that several different goblins remind him of 'a babe', it seems more reasonable to assume that the song is an expression of pure whimsy, in the rock vein, akin to Little Richard's 'Tutti Frutti', Rob Zombie's 'Dragula', or Queen's 'Bohemian Rhapsody' (no conclusive evidence of Freddie Mercury's claimed homicide exists).