The first and second-order polarization mode dispersion (PMD) effect on the performance of 10 Gbit/s and 40 Gbit/s systems is studied. The statistical behavior of PMD is considered by simulating the nonreturn-to-zero (NRZ) and return-to-zero (RZ) pulses distortion and the system's Q-factor based on principal states of polarization (PSP) theory. It is found that the effect of PMD is significant in higher bit rate systems and the second-order PMD cannot be neglected. Furthermore, the RZ format is more tolerant to PMD than is the NRZ format, and the system performance is improved if the input pulses are appropriately chirped.