In a late-medieval-ish era (and indeed, most eras before 1880), cities were the place you shipped your surplus population to.
The death rate in cities tended to be higher than the birth rate. Most folks were born in rural areas, and the segment that was particularly ambitious or disinclined to farm work eventually migrated to a town or a city to learn some other trade.
Towns and cities were (and are) centers of learning, government, and trade. They provide essential services to their market area. Wealthy and powerful families lived there. But that doesn't mean they were fun to live in.
Large cities were extremely rare before railways were invented. In the era you are talking about, the urban population was generally distributed among many towns...just as you want.
Economic activity or individual wealth are poor measures of Quality of Life. My quality of life is superior to every Pharoah by any measures except wealth and stone architecture and army size.
If you want to improve quality of life, start with education, consistently-enforced laws, and tearing down gender boundaries: Make life a bit less nasty and brutish, a bit more fair, and unchain the cleverness of half the population. After that, people will figure out a lot of improvements for themselves, regardless of whether they are rural or urban.
If you want to improve the trading of goods and services (the economy), it's about politics first: The local duke/prince and assorted goons control the resources, and their wealth is on display in their palace to impress their friends instead of in the bank doing real work. If you want an efficient distribution of resources, it's not about towns vs. cities. It's about a merchant class that can trade without fear of (legalized) theft.