E.R.
Hi B.!
I have worked as a professional dog trainer for 4 years now. The advice I would give to you (since you know the "why" as to the digging) is mainly supervision. BUT, since he is an outside dog only, you might want to try chicken wire. Take some chicken wire and lay it on the ground along the fence where he normally digs. Cover it with mulch and dirt. Then when he starts digging, he will hit the wires w/ his paws, and it is an unpleasant feeling. This usually helps the problem.
Other things you might want to consider:
if he wants to see the neighbor dog so bad, maybe you and the neighbor can schedule playdates a couple times a week, so he gets that chance for doggie interaction that he is so obviously needing (you also might want to look into dog parks. having a proper time to play w/ other dogs will help w/ the problem behavior and his overall well being). He is also probably VERY lonely during the day while you are gone. So maybe something that can help w/ that (like someone, even a neighbor walking him mid-day, coming by to visit w/ him, or something of the sort. usually older neighbors are good for this! They love to have a reason to get out of the house!). You are right, a shock collar will not help this problem (shock collars really don't help many problems). You can also try sprinkling pepper or cayanne pepper in the soil to help deter him from digging. And you might also want to make sure he get a good walk every morning before you leave. Believe it or not, but a good long walk is usually the BEST cure for most behavioral problems. As I tell my students "a tired dog is a good dog". Feel free to contact me personally if you have any more questions. He might also benifit from some "thinking" toys to make sure he doesn't get bored during the day. You can contact me and we can talk about what he likes to do and some good toys or things you can make that will help.