Preheat the oven to 350°F (175°C). Line two baking sheets with parchment paper.
In a large bowl, cream together the softened unsalted butter and granulated sugar until light and fluffy, about 3-4 minutes.
Add the egg yolk and vanilla extract to the butter mixture and beat until combined.
In a separate bowl, whisk together the all-purpose flour and salt.
Gradually add the flour mixture to the wet ingredients, mixing until a soft dough forms. Do not overmix.
Turn the dough out onto a lightly floured surface and roll it out to about 1/4 inch thickness.
Use label-shaped cookie cutters or a knife to cut out label shapes from the dough.
Place the cut cookies onto the prepared baking sheets, spacing them about 1 inch apart.
Bake in the preheated oven for 12-15 minutes, or until the edges are lightly golden.
Remove the cookies from the oven and let them cool on the baking sheets for 5 minutes before transferring to a wire rack to cool completely.
For icing, mix the powdered sugar with milk until smooth. Add food coloring if desired.
Decorate the cooled cookies with the icing using a piping bag or spoon. Allow the icing to set before handling or packaging.