The Raman effect in semiconductor waveguides below half‐gap is studied both experimentally and numerically. We report the depolarized Raman gain spectra up to 300 cm−1in Al0.24Ga0.76As at pump wavelengths of 0.515 and 1.55 &mgr;m from the measurement of the absolute Raman scattering cross sections using GaAs as a reference scatterer. In addition, the coupled propagation equations for the AlGaAs waveguides are modified to include the Raman effect. By solving the coupled propagation equations numerically, we verify that the energy transfer between two orthogonally polarized pulses demonstrated in previous pump‐probe experiments [M. N. Islametal., J. Appl. Phys.71, 1927 (1992)] is caused by Raman effect. We also show numerically that the Raman effect induces spectral distortions on the pulses, and the energy transfer is inversely proportional to the pulse widths. The energy transfer results in a severe cross‐talk problem for sub‐picosecond pulses in AlGaAs waveguides. For example, the energy exchange is about 30% for 300 fs pulses under &pgr; phase shift conditions. Therefore, the Raman effect limits the performance of semiconductor waveguides in optical switching applications for sub‐picosecond pulses. ©1995 American Institute of Physics.