Paypal doesn't include any functionality for printing the label smaller. Having said that, you may be able to print your labels to a file instead of the printer then change the size of the labels in the file then print them.
Word of warning about scaling the labels down. It used to be on Amazon.com if you used their shipping and printed on a 4x6 label printer you would get a label about 60% percent the size of a normal label. The post office would accept the packages with the small labels but we experience a shart rise in returned packages and packages that take a week or more to be delivered through first class mail.
My advice would be to print address labels and then some sort of postage from a postage meter or some online service.
