The report by the Education Policy Institute (EPI) described levels of financial insecurity as "serious", with research finding that 44.5 per cent of childcare workers were receiving state assistance after receiving a mean gross pay of £8.20 per hour.
According to the Early Years Workforce in England analysis, the rate of benefit claimants was higher compared with hairdressing and beauty - occupations often presented as alternative careers for women. In this category there were 40.5 per cent claiming benefits while working for £7.80 per hour.
The number and rate of early education workers claiming tax credits and other state benefits has declined in recent years but alarming levels continue.
Data reveals there were about 347,000 such claimants in 2013, dropping by around 30,000 to approximately 319,000 last year.
The most significant drop in the percentage of childcare workers claiming tax credits and state benefits happened between 2013 and 2015 and since 2016 percentages have plateaued.
The EPI could not offer a firm explanation for the change but report author Sara Bonetti, associate director of early years at the EPI, said: "The key point that we'd emphasise from the findings is that this figure is still very high, compared to other workers."
The institute found 25.1 per cent of childcare workers had a degree or equivalent education level, 13 per cent had a higher education level, 36 per cent had a GCE, A-level or equivalent, and 18.8 per cent had GCSE grades A*-C or equivalent. Only 1.5 per cent had no qualification at all.
This was in contrast with hairdressing and beauty professionals. Just 7.4 per cent of workers had a degree or equivalent, 6.2 per cent had a higher education qualification, just over half (50.5 per cent) had a GCE, A-level or equivalent qualification, and 22.5 per cent had GCSE grades A*-C or equivalent,
The report states: "Pay rates for the two groups have been converging over time.
"While we have seen that on average childcare workers have higher levels of qualifications compared to hairdressers and beauticians, the wage differential is almost zero, providing very little incentive to childcare workers to upskill or to stay in the sector after reaching higher levels of qualification."
The report highlights that progress on increasing rates and levels of qualifications among early years educators has been slow and erratic.
This is in spite of a government bid to boost qualifications, such as through the introduction of level three "Early Years Educator" diplomas in 2013.
The EPI research found that in 2018, 68.3 per cent of childcare workers held a Level 3 qualification compared with 65.9 per cent in 2013. However, in 2016 the proportion was 73 per cent.
The report also highlights that the early years workforce as a whole remained much less qualified than both the teaching workforce and general female workforce.
The quarter of childcare workers holding a degree as their highest qualification level contrasted sharply with 98.2 per cent of teaching workers and 37.1 per cent of all female workers qualified to the same level.
"The childcare workforce is often portrayed as mostly female, low qualified and poorly paid and our analysis confirms this," the report stated.
"Signs of financial insecurity are serious.
"While early years practitioners are tasked with the important work of helping close the disadvantage gap, pay and some employment conditions are keeping the very same workers in a position of socio-economic disadvantage.
"The evidence clearly indicates that a skilled and qualified workforce is a key driver of high-quality provision.
"Yet this report finds that the skills and sustainability of the workforce are going in the wrong direction."
The EPI recommended the government should deliver a long-term strategy that included more incentives for workers to enter and remain in the sector, with opportunities to upskill, better wages and improved financial security.
Professional Association for Childcare and Early Years (Pacey) chief executive Liz Bayram said low levels of government funding for early education was forcing early education settings to pay low wages and preventing them from investing in qualifications.
"Pacey members have told us that they love their job but could earn more as a dog walker," said Bayram.
"Practitioners are being expected to take on more and more responsibility for early interventions that support children, especially our most disadvantaged, to have the best start in life."
National Day Nurseries Association director of quality and training, Stella Ziolkowski said the Department for Education was "only focusing on the volume, not quality of early years provision".
"We know many people love working in childcare and this passion is being taken advantage of," she said.
"We want to see the workforce properly recognised and rewarded but with funding for early years going backwards we are seeing downward pressure on the workforce."
She pointed to warnings in the report that the current situation risked increasing recruitment problems in the future, as numbers of practitioners in the sector were stagnating, those most qualified among the workforce were aging, and fewer employees were upskilling.
Between 2013 and 2018, the number of childcare workers has only risen by about 16,000 (from 700,000 to 716,000).
The proportion of childcare workers studying towards a higher qualification fell from 22.7 per cent in 2008 to 17.2 per cent in 2013 and 14.9 per cent in 2018.
The research was based on government-collected data within its Labour Force Survey - a quarterly sample of 90,000 individuals.
Children and families minister Nadhim Zahawi, said: "We want every child to have the best start in life, with access to early education that sets them up to succeed later in life.
"The vast majority of early years providers - 95 per cent - are rated good or outstanding by Ofsted, but there is always more to do. That's why we are improving the training and professional development available to the early years workforce, including through our £20m programme targeted at those working in more deprived areas.
"We continue to work closely with the sector to look for ways to increase diversity among early years staff, provide better career information and support, and develop new criteria for early years qualifications to improve their professional skills."