That's a good point, and the question of why Jareth would want to become Goblin King in the first place is an interesting one. RTL says that he found them amusing to begin with and that’s why he took them as his subjects, and although it’s not a particularly compelling explanation it’s the closest thing to an explanation we have.
Jim is on record as saying the entire film was Sarah's dream, in an interview with Ecran Fantastique he said-
The heroine [Sarah] lives in her own little imaginary and fantasy-laden world. Dreams are very important to her. The Wizard of Oz means a lot to her. When she goes into the dream world, which makes up the whole film, she plays a role that recalls the way she feels about the real world. At the end, when she emerges from the dream, from the fantasy, she starts to renounce the foolishness of her childhood, and what the characters say is simply we’re here; we’re part of you, all of us as we are. You don’t have to give up your fantasies because you grow up; they’re part of you all your life.
Of course, this is backed up by hints in the film, such as Bowie appearing as the boyfriend of Sarah's mother in photographs, the toys in Sarah's room that resemble characters from the Labyrinth and so on.
In light of that, it's interesting that the JHC has officially sanctioned the view that everything that happened in the film is real with the Return to Labyrinth series. I imagine that must be for two reasons, a.) there aren’t many narrative possibilities if you’re starting from the view-point that Sarah dreamed the events of the film b.) the majority of the fan-base adopted the view that everything that happened in the film is real.